Market Sentiment: Options Activity for May 11, 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: 1.11 (Overly Bearish)
- Index Volume Put/Call Ratio: 1.70 (Overly Bearish)
- Equity Volume Put/Call Ratio: 0.70
Equities with the highest volume put/call ratio (Overly Bearish Sentiment)
- PEABODY ENERGY CORP (BTU) – Volume Put/Call Ratio: 5.8 – Open Interest Put/Call Ratio: 0.66
- Dell Inc. (DELL) – Volume Put/Call Ratio: 5.31 – Open Interest Put/Call Ratio: 1.02
- NOBLE ENERGY INC (NBL) – Volume Put/Call Ratio: 5.17 – Open Interest Put/Call Ratio: 0.24
- BANK OF NY MELLON CP (BK) – Volume Put/Call Ratio: 4.83 – Open Interest Put/Call Ratio: 0.64
- PENNEY J C CO HOLDIN (JCP) – Volume Put/Call Ratio: 4.54 – Open Interest Put/Call Ratio: 0.63
- REGIONS FINANCIAL CP (RF) – Volume Put/Call Ratio: 4.46 – Open Interest Put/Call Ratio: 1.62
- A F L A C INC (AFL) – Volume Put/Call Ratio: 4.38 – Open Interest Put/Call Ratio: 1.45
- BRISTOL-MYERS SQUIBB (BMY) – Volume Put/Call Ratio: 4.27 – Open Interest Put/Call Ratio: 0.87
- MCDONALDS CP (MCD) – Volume Put/Call Ratio: 3.97 – Open Interest Put/Call Ratio: 0.99
- Express Scripts, Inc. (ESRX) – Volume Put/Call Ratio: 2.69 – Open Interest Put/Call Ratio: 0.84
Equities with the lowest volume put/call ratio (Overly Bullish Sentiment)
- DU PONT E I DE NEM (DD) – Volume Put/Call Ratio: 0.06 – Open Interest Put/Call Ratio: 0.78
- Applied Materials, Inc. (AMAT) – Volume Put/Call Ratio: 0.12 – Open Interest Put/Call Ratio: 0.87
- Cephalon, Inc. (CEPH) – Volume Put/Call Ratio: 0.13 – Open Interest Put/Call Ratio: 0.25
- Intel Corporation (INTC) – Volume Put/Call Ratio: 0.18 – Open Interest Put/Call Ratio: 0.83
- ADV MICRO DEVICES (AMD) – Volume Put/Call Ratio: 0.2 – Open Interest Put/Call Ratio: 0.49
- Yahoo! Inc. (YHOO) – Volume Put/Call Ratio: 0.22 – Open Interest Put/Call Ratio: 0.57
- AMER INTL GROUP NEW (AIG) – Volume Put/Call Ratio: 0.24 – Open Interest Put/Call Ratio: 0.75
- JACOBS ENGINEERNG GP (JEC) – Volume Put/Call Ratio: 0.24 – Open Interest Put/Call Ratio: 2.32
- INTERCNTNTLEXCHANGE (ICE) – Volume Put/Call Ratio: 0.26 – Open Interest Put/Call Ratio: 0.56
- GAP INC (GPS) – Volume Put/Call Ratio: 0.28 – Open Interest Put/Call Ratio: 0.39
**Note: Ratios indicated above use volumes and open interest of current month option contracts
Stocks mentioned in this post: BTU, DELL, NBL
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