Equity Clock

Market Sentiment: Options Activity for April 30, 2010

A reasonable gauge of market sentiment is the Put/Call Ratio. This is the ratio of the volume of put options to the volume of call options. Alternatively, open interest can be used in the calculation, as opposed to volume.

The ratio has become a commonly used indicator to determine if investors are bearish or bullish on a particular investment. When the Put/Call ratio is greater than 1 it is indicative of a bearish sentiment with Puts exceeding Calls. Conversely, a ratio less than 1 would mark a bullish sentiment with Calls exceeding Puts.

Contrarians use this ratio as a market timing indicator by gauging investments that may be overly bearish (high ratio) as a sign that the market is close to bottoming and buy on the expectation of a rebound. Conversely, if the market has become overly bullish (low ratio) investors would interpret this as an indication that a top is near and sell as a result. The ratio is more indicative when greater than 1, bearish sentiment, as it is more common that investors purchase call options over puts.

Today’s Options Action at mid-day:

• Total Volume Put/Call Ratio: 0.92
• Index Volume Put/Call Ratio: 1.86
• Equity Volume Put/Call Ratio: 0.58

Equities with the highest volume put/call ratio (Overly Bearish Sentiment)

1. Costco Wholesale Corporation (COST) – Volume Put/Call Ratio: 28.12 – Open Interest Put/Call Ratio: 0.99
2. Aeropostale Inc Common Stock (ARO) – Volume Put/Call Ratio: 16.94 – Open Interest Put/Call Ratio: 1.59
3. SMITH INTL INC (SII) – Volume Put/Call Ratio: 14.66 – Open Interest Put/Call Ratio: 2.53
4. Mednax, Inc. Common Stock (MD) – Volume Put/Call Ratio: 14.16 – Open Interest Put/Call Ratio: 1.95
5. Williams-Sonoma, Inc. Common St (WSM) – Volume Put/Call Ratio: 13.38 – Open Interest Put/Call Ratio: 2.9
6. The Cheesecake Factory Incorpor (CAKE) – Volume Put/Call Ratio: 11.79 – Open Interest Put/Call Ratio: 1.1
7. XL CAPITAL LTD (XL) – Volume Put/Call Ratio: 10.78 – Open Interest Put/Call Ratio: 0.85
8. BALL CP (BLL) – Volume Put/Call Ratio: 9.87 – Open Interest Put/Call Ratio: 1.25
9. Fiserv, Inc. (FISV) – Volume Put/Call Ratio: 8.95 – Open Interest Put/Call Ratio: 0.74
10. NIKE INC CL B (NKE) – Volume Put/Call Ratio: 8.3 – Open Interest Put/Call Ratio: 1.37

Equities with the lowest volume put/call ratio (Overly Bullish Sentiment)

1. SOUTHERN CO (SO) – Volume Put/Call Ratio: 0.01 – Open Interest Put/Call Ratio: 1.87
2. ARCHER DANIELS MDLND (ADM) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 0.77
3. Bed Bath & Beyond Inc. (BBBY) – Volume Put/Call Ratio: 0.02 – Open Interest Put/Call Ratio: 1.15
4. ALLERGAN INC (AGN) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.48
5. Skyworks Solutions, Inc. (SWKS) – Volume Put/Call Ratio: 0.04 – Open Interest Put/Call Ratio: 0.46
6. Huntington Bancshares Incorpora (HBAN) – Volume Put/Call Ratio: 0.04 – Open Interest Put/Call Ratio: 0.67
7. Hansen Natural Corporation (HANS) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 0.34
8. Jefferies Group, Inc. Common St (JEF) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 1.05
9. E*TRADE Financial Corporation (ETFC) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 0.13
10. NutriSystem Inc (NTRI) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 0.31

**Note: Ratios indicated above use volumes and open interest of current month option contracts

Stocks mentioned in this post: ARO, COST, SII