Ask TheStreet: Secondaries

But the tail cannot wag the dog for too long, says Smith, so the impact is short-lived.

As far as using option activity as a predictor or indicator for impending price moves, it's very difficult, open to interpretation and not too reliable.

The main tool for using options as a contrary indicator is the put/call ratio. A high level of put volume tends to suggest bearish sentiment and might be interpreted, from a contrarian standpoint, as bullish.

The name of this indicator refers to the two main options classes, those that become valuable when the underlying stocks fall (puts) and rise (calls). The put-to-call ratio is simply the volume of all puts divided by the volume of all calls that trade on a particular day. Like the VIX, which measures the market's volatility, the put-to-call ratio runs in direct proportion to investors' nerves: The higher the number, the shakier their knees.

A reading over 1.0 indicates bearishness in the market, because a high level of put-buying indicates a rising level of fear. That, of course, is bullish if you're a contrarian betting against sentiment.

"Typically, traders like to see the put/call hit 1.5 or higher to get an oversold signal," says Smith. "But on a big down day, such as a market crash, it can hit extreme readings of 4 or greater. On the other hand, a reading of 0.50 or below indicates a high level of bullishness. So contrarians might think the market top is at hand and start selling."