Equity Clock

Market Sentiment: Options Activity for July 7, 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 market close:

• Total Volume Put/Call Ratio: 0.85
• Index Volume Put/Call Ratio: 1.38
• Equity Volume Put/Call Ratio: 0.52

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

1. CAPITAL ONE FINANCIA (COF) – Volume Put/Call Ratio: 6.46 – Open Interest Put/Call Ratio: 2.34
2. FAMILY DOLLAR STORES (FDO) – Volume Put/Call Ratio: 5.01 – Open Interest Put/Call Ratio: 1.37
3. priceline.com Incorporated (PCLN) – Volume Put/Call Ratio: 3.85 – Open Interest Put/Call Ratio: 0.97
4. C S X CP (CSX) – Volume Put/Call Ratio: 3.56 – Open Interest Put/Call Ratio: 0.54
5. CONS ENERGY INC (CNX) – Volume Put/Call Ratio: 2.86 – Open Interest Put/Call Ratio: 0.76
6. Altera Corporation (ALTR) – Volume Put/Call Ratio: 2.52 – Open Interest Put/Call Ratio: 1.06
7. ALTRIA GROUP INC (MO) – Volume Put/Call Ratio: 2.43 – Open Interest Put/Call Ratio: 2.35
8. ABBOTT LABORATORIES (ABT) – Volume Put/Call Ratio: 2.07 – Open Interest Put/Call Ratio: 0.68
9. 3M COMPANY (MMM) – Volume Put/Call Ratio: 2.04 – Open Interest Put/Call Ratio: 1.15
10. SALESFORCE.COM INC (CRM) – Volume Put/Call Ratio: 1.85 – Open Interest Put/Call Ratio: 2.34

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

1. AT&T INC. (T) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 1.4
2. SUNTRUST BANKS (STI) – Volume Put/Call Ratio: 0.12 – Open Interest Put/Call Ratio: 1.43
3. A K STEEL HLDG CORP (AKS) – Volume Put/Call Ratio: 0.14 – Open Interest Put/Call Ratio: 0.35
4. WALT DISNEY-DISNEY C (DIS) – Volume Put/Call Ratio: 0.16 – Open Interest Put/Call Ratio: 0.93
5. GEN ELECTRIC CO (GE) – Volume Put/Call Ratio: 0.17 – Open Interest Put/Call Ratio: 0.77
6. SPRINT NXTEL CP (S) – Volume Put/Call Ratio: 0.2 – Open Interest Put/Call Ratio: 0.31
7. Microsoft Corporation (MSFT) – Volume Put/Call Ratio: 0.25 – Open Interest Put/Call Ratio: 0.62
8. DOW CHEMICAL (DOW) – Volume Put/Call Ratio: 0.26 – Open Interest Put/Call Ratio: 1.58
9. CITIGROUP INC (C) – Volume Put/Call Ratio: 0.26 – Open Interest Put/Call Ratio: 0.4
10. GENWORTH FINANCIAL (GNW) – Volume Put/Call Ratio: 0.3 – Open Interest Put/Call Ratio: 0.14

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

Stocks mentioned in this post: COF, FDO, PCLN