Equity Clock

Market Sentiment: Options Activity for July 19, 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: 0.70 (Overly Bullish)
• Index Volume Put/Call Ratio: 1.13
• Equity Volume Put/Call Ratio: 0.52 (Overly Bullish)

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

1. EASTMAN KODAK CO (EK) – Volume Put/Call Ratio: 19.29 – Open Interest Put/Call Ratio: 2.79
2. Starbucks Corporation (SBUX) – Volume Put/Call Ratio: 6.01 – Open Interest Put/Call Ratio: 0.61
3. DIAMOND OFFSHORE DRL (DO) – Volume Put/Call Ratio: 3.52 – Open Interest Put/Call Ratio: 1.3
4. WESTERN DIGITAL CP (WDC) – Volume Put/Call Ratio: 3.21 – Open Interest Put/Call Ratio: 2.24
5. Wynn Resorts, Limited (WYNN) – Volume Put/Call Ratio: 3.13 – Open Interest Put/Call Ratio: 2.26
6. CBS CORP CL B (CBS) – Volume Put/Call Ratio: 3.07 – Open Interest Put/Call Ratio: 4.3
7. F5 Networks, Inc. (FFIV) – Volume Put/Call Ratio: 2.79 – Open Interest Put/Call Ratio: 1.7
8. Amazon.com, Inc. (AMZN) – Volume Put/Call Ratio: 2.6 – Open Interest Put/Call Ratio: 2.05
9. Cree, Inc. (CREE) – Volume Put/Call Ratio: 2.42 – Open Interest Put/Call Ratio: 2.08
10. FEDEX CORP (FDX) – Volume Put/Call Ratio: 2.3 – Open Interest Put/Call Ratio: 0.86

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

1. VERIZON COMMUN (VZ) – Volume Put/Call Ratio: 0.03 – Open Interest Put/Call Ratio: 0.71
2. Electronic Arts Inc. (ERTS) – Volume Put/Call Ratio: 0.08 – Open Interest Put/Call Ratio: 0.27
3. SPRINT NXTEL CP (S) – Volume Put/Call Ratio: 0.1 – Open Interest Put/Call Ratio: 0.5
4. MOTOROLA INC (MOT) – Volume Put/Call Ratio: 0.11 – Open Interest Put/Call Ratio: 0.16
5. MEDTRONIC INC (MDT) – Volume Put/Call Ratio: 0.14 – Open Interest Put/Call Ratio: 0.41
6. CITIGROUP INC (C) – Volume Put/Call Ratio: 0.14 – Open Interest Put/Call Ratio: 0.52
7. PFIZER INC (PFE) – Volume Put/Call Ratio: 0.16 – Open Interest Put/Call Ratio: 0.55
8. CHESAPEAKE ENERGY CP (CHK) – Volume Put/Call Ratio: 0.18 – Open Interest Put/Call Ratio: 0.54
9. KOHLS CP (KSS) – Volume Put/Call Ratio: 0.2 – Open Interest Put/Call Ratio: 0.42
10. COCA COLA CO THE (KO) – Volume Put/Call Ratio: 0.22 – Open Interest Put/Call Ratio: 0.82

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

Stocks mentioned in this post: DO, EK, ERTS, S, SBUX, VZ