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Market Sentiment: Options Activity for May 3, 2010

MarketSentiment

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: 0.75
  • Index Volume Put/Call Ratio: 1.46
  • Equity Volume Put/Call Ratio: 0.53

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

  1. Autodesk, Inc. (ADSK) – Volume Put/Call Ratio: 24.04 – Open Interest Put/Call Ratio: 0.4
  2. EMERSON ELEC CO (EMR) – Volume Put/Call Ratio: 14.99 – Open Interest Put/Call Ratio: 2.06
  3. BMC Software, Inc. (BMC) – Volume Put/Call Ratio: 10.93 – Open Interest Put/Call Ratio: 1.02
  4. Varian Semiconductor Equipment (VSEA) – Volume Put/Call Ratio: 8.01 – Open Interest Put/Call Ratio: 0.65
  5. Phillips-Van Heusen Corporation (PVH) – Volume Put/Call Ratio: 7.16 – Open Interest Put/Call Ratio: 2.06
  6. Eclipsys Corporation (ECLP) – Volume Put/Call Ratio: 5.55 – Open Interest Put/Call Ratio: 0.87
  7. NORDSTROM INC (JWN) – Volume Put/Call Ratio: 5.11 – Open Interest Put/Call Ratio: 2.24
  8. XL CAPITAL LTD (XL) – Volume Put/Call Ratio: 4.99 – Open Interest Put/Call Ratio: 0.95
  9. C.H. Robinson Worldwide, Inc. (CHRW) – Volume Put/Call Ratio: 4.83 – Open Interest Put/Call Ratio: 0.36
  10. F5 Networks, Inc. (FFIV) – Volume Put/Call Ratio: 4.65 – Open Interest Put/Call Ratio: 1.22

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

  1. Terex Corporation Common Stock (TEX) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.72
  2. Dollar Tree, Inc. (DLTR) – Volume Put/Call Ratio: 0.04 – Open Interest Put/Call Ratio: 0.9
  3. Mohawk Industries, Inc. Common (MHK) – Volume Put/Call Ratio: 0.04 – Open Interest Put/Call Ratio: 1.72
  4. HOME DEPOT INC (HD) – Volume Put/Call Ratio: 0.04 – Open Interest Put/Call Ratio: 0.62
  5. LOWES COMPANIES (LOW) – Volume Put/Call Ratio: 0.04 – Open Interest Put/Call Ratio: 0.26
  6. Adobe Systems Incorporated (ADBE) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 0.98
  7. BRISTOL-MYERS SQUIBB (BMY) – Volume Put/Call Ratio: 0.08 – Open Interest Put/Call Ratio: 0.9
  8. LILLY ELI CO (LLY) – Volume Put/Call Ratio: 0.08 – Open Interest Put/Call Ratio: 1.69
  9. VIACOM INC CL B (VIA-B) – Volume Put/Call Ratio: 0.09 – Open Interest Put/Call Ratio: 1.18
  10. Hologic, Inc. (HOLX) – Volume Put/Call Ratio: 0.09 – Open Interest Put/Call Ratio: 0.24

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

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