Equity Clock

Market Sentiment: Options Activity for May 27, 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: 1.07 (Overly Bearish)
• Index Volume Put/Call Ratio: 2.07 (Overly Bearish) 
• Equity Volume Put/Call Ratio: 0.53

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

1. ENSCO INTL PLC (ESV) – Volume Put/Call Ratio: 6.67 – Open Interest Put/Call Ratio: 0.48
2. Pride International, Inc. Commo (PDE) – Volume Put/Call Ratio: 5.84 – Open Interest Put/Call Ratio: 0.21
3. Zions Bancorporation (ZION) – Volume Put/Call Ratio: 5.34 – Open Interest Put/Call Ratio: 1.37
4. JDS Uniphase Corporation (JDSU) – Volume Put/Call Ratio: 5.02 – Open Interest Put/Call Ratio: 0.52
5. Broadcom Corporation (BRCM) – Volume Put/Call Ratio: 4.09 – Open Interest Put/Call Ratio: 1.66
6. WALT DISNEY-DISNEY C (DIS) – Volume Put/Call Ratio: 3.86 – Open Interest Put/Call Ratio: 1.22
7. STATE STREET CP (STT) – Volume Put/Call Ratio: 3.52 – Open Interest Put/Call Ratio: 1.35
8. Blue Coat Systems Inc (BCSI) – Volume Put/Call Ratio: 2.39 – Open Interest Put/Call Ratio: 2.04
9. KRAFT FOODS INC (KFT) – Volume Put/Call Ratio: 2.37 – Open Interest Put/Call Ratio: 1.04
10. Plains Exploration & Production (PXP) – Volume Put/Call Ratio: 2.31 – Open Interest Put/Call Ratio: 0.46

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

1. MCDONALDS CP (MCD) – Volume Put/Call Ratio: 0.04 – Open Interest Put/Call Ratio: 1.35
2. CHESAPEAKE ENERGY CP (CHK) – Volume Put/Call Ratio: 0.18 – Open Interest Put/Call Ratio: 0.8
3. WHIRLPOOL CP (WHR) – Volume Put/Call Ratio: 0.21 – Open Interest Put/Call Ratio: 1.63
4. Fifth Third Bancorp (FITB) – Volume Put/Call Ratio: 0.24 – Open Interest Put/Call Ratio: 2.55
5. Micron Technology, Inc. (MU) – Volume Put/Call Ratio: 0.24 – Open Interest Put/Call Ratio: 0.56
6. A K STEEL HLDG CORP (AKS) – Volume Put/Call Ratio: 0.3 – Open Interest Put/Call Ratio: 0.45
7. WESTERN DIGITAL CP (WDC) – Volume Put/Call Ratio: 0.31 – Open Interest Put/Call Ratio: 0.33
8. Amedisys Inc (AMED) – Volume Put/Call Ratio: 0.32 – Open Interest Put/Call Ratio: 1.58
9. MASSEY ENERGY CO (MEE) – Volume Put/Call Ratio: 0.32 – Open Interest Put/Call Ratio: 0.57
10. SPRINT NXTEL CP (S) – Volume Put/Call Ratio: 0.33 – Open Interest Put/Call Ratio: 0.24

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

Stocks mentioned in this post: ESV, PDE, ZION