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Market Sentiment: Options Activity for September 20, 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 market close:

  • Total Volume Put/Call Ratio: 0.79  (Overly Bullish)
  • Index Volume Put/Call Ratio: 1.53 
  • Equity Volume Put/Call Ratio: 0.47 (Overly Bullish)

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

  1. WALGREEN CO (WAG) – Volume Put/Call Ratio: 23.97 – Open Interest Put/Call Ratio: 0.53
    • The stock is currently overbought and technicals are showing signs of rolling over.   The stock remained flat for much of the day despite higher than recent average volume.   The stock finds peak seasonal strength in the October/November timeframe.   Seasonal profile available at http://charts.equityclock.com/walgreen-company-nysewag-seasonal-chart
  2. SUNOCO INC (SUN) – Volume Put/Call Ratio: 4.61 – Open Interest Put/Call Ratio: 0.8
  3. THE HERSHEY COMPANY (HSY) – Volume Put/Call Ratio: 4.19 – Open Interest Put/Call Ratio: 0.11
    • The stock recently produced a technical buy signal last week after bottoming at around $45.50.  The stock has now entered overbought territory on higher than average volume, implying conviction to the move.   Seasonal tendencies for this equity are mainly undefined.   Seasonal profile is available at http://charts.equityclock.com/the-hershey-company-nysehsy-seasonal-chart
  4. COMERICA INC (CMA) – Volume Put/Call Ratio: 3.79 – Open Interest Put/Call Ratio: 1.55
  5. Altera Corporation (ALTR) – Volume Put/Call Ratio: 3.3 – Open Interest Put/Call Ratio: 2.42
  6. Career Education Corporation (CECO) – Volume Put/Call Ratio: 3.14 – Open Interest Put/Call Ratio: 0.31
  7. P N C FIN SVCS GR (PNC) – Volume Put/Call Ratio: 2.33 – Open Interest Put/Call Ratio: 1.88
  8. JOHNSON AND JOHNS DC (JNJ) – Volume Put/Call Ratio: 2.12 – Open Interest Put/Call Ratio: 0.98
  9. ITT Educational Services, Inc. (ESI) – Volume Put/Call Ratio: 2.08 – Open Interest Put/Call Ratio: 1.69
  10. Xilinx, Inc. (XLNX) – Volume Put/Call Ratio: 1.95 – Open Interest Put/Call Ratio: 1.41

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

  1. CITIGROUP INC (C) – Volume Put/Call Ratio: 0.08 – Open Interest Put/Call Ratio: 0.05
    • The stock is currently resisting at around $4.00 as overbought indications persist.   The stock continues in its summer range but investors are betting on an upside move in the future as noted by the significant call volume compared to puts on the day.   Seasonal tendencies are noticed around the March/April timeframe.   Seasonal profile available at http://charts.equityclock.com/citigroup-inc-nysec-seasonal-chart
  2. BK OF AMERICA CP (BAC) – Volume Put/Call Ratio: 0.08 – Open Interest Put/Call Ratio: 0.71
    • The stock made a nice move today and the chart is showing indications that the equity has bottomed out in the long-run.   Technicals are showing signs of rolling over and a sell signal may be imminent.   A pullback may present better value for investors.   Seasonal tendencies are witnessed in the March through to June timeframe.   Seasonal profile available at http://charts.equityclock.com/bank-of-america-corporation-nysebac-seasonal-chart
  3. FIDELITY NAT INF SVC (FIS) – Volume Put/Call Ratio: 0.11 – Open Interest Put/Call Ratio: 1.19
    • Another financial stock with high call volume on the day that appears to have topped out.   Technicals show that the stock is overbought and indicators are rolling over.   Seasonal tendencies are focused toward the March through to June period.
  4. PEPSICO INC (PEP) – Volume Put/Call Ratio: 0.16 – Open Interest Put/Call Ratio: 0.68
  5. Intrepid Potash, Inc Common Sto (IPI) – Volume Put/Call Ratio: 0.18 – Open Interest Put/Call Ratio: 0.15
  6. KB HOME (KBH) – Volume Put/Call Ratio: 0.2 – Open Interest Put/Call Ratio: 0.51
  7. KB Home Common Stock (KBH) – Volume Put/Call Ratio: 0.21 – Open Interest Put/Call Ratio: 0.51
  8. CORNING INC (GLW) – Volume Put/Call Ratio: 0.22 – Open Interest Put/Call Ratio: 0.66
  9. WAL MART STORES (WMT) – Volume Put/Call Ratio: 0.22 – Open Interest Put/Call Ratio: 0.63
  10. Chico’s FAS, Inc. Common Stock (CHS) – Volume Put/Call Ratio: 0.23 – Open Interest Put/Call Ratio: 0.12

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

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