This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Sentiment Shift

TheStreet Premium Services

A complimentary preview
of Options-Profits Previews

Market sentiment has seen a dramatic shift since Tuesday with the S&P 500 Index (.SPX) sliding 3.6% over the past two days (excluding Friday). We are at three-month lows on renewed concerns about the fiscal cliff, European woes, and even talk of a potential US recession depending on how Washington deals with the issue into year end.

The CBOE Volatility Index (VIX) closed at multi-month highs of 19.08 Wednesday, and while it slid a bit on Thursday, we are still looking at general volatility levels well above what we were looking at two months ago. The total ratio of puts to call traded across all the exchanges rose to 1.08 Wednesday and remained high at 1.15 yesterday (excluding ex-dividend trading activity), which are also multi-month highs.

Shares of Apple (AAPL) have slid 20% from their $700 handle highs, having a psychological impact on retail traders who have enjoyed a very profitable ride from the $570 range this summer. In addition, large blocks of puts traded in some of the exchange-traded funds reflect the bearish underlying sentiment as well.

EEM, SPY, XLF: Options Dashboard
Source: Trade Alert


The largest block of options to trade Thursday was in the iShares Emerging Markets Fund (EEM). Shares are ticking a bit higher this morning, up $0.10 to $41.02, and the big trade in the ETF was a 104,000-contract block of November 40.5 puts for $0.38 per contract. An investor bought the block, according to a source on the exchange floor. The trade represents the largest single block of options traded across the exchanges in weeks. Today's open interest numbers indicate the hefty premium purchase is an opening or new position. November 40.5 puts on EEM are 1.3% out-of-the-money and expiring at the end of next week.

EEM, SPY, XLF: Options Dashboard
Source: Trade Alert

A second big print Thursday surfaced in the SPDR Financial Fund (XLF). Shares are up $0.02 to $15.50 and 96,500 January 15 puts traded on the ETF for $0.38 per contract, electronically on ISE. Data from ISE is reporting a customer bought the puts and today's open interest numbers confirm that a new position was opened. The contract is 3.2% out-of-the-money and expiring in 10 weeks.

While the softening of VIX in the face of a down market may be taken as a sign that panic is not in the mix, I don't believe that decline tells the entire story, since the volatility buildup into the election will take some time to unwind, I am focusing more on the large blocks of puts in the ETF market as a sign of concern and/or hedging activity among some big "smart money" players. In addition, the total put-to-call ratio is spiking to multi-month highs, suggesting the recent market down turn has indeed triggered a dramatic shift in investor sentiment.

With only 52 days until year end, and SPX up more than $100 points (7%) on the year, I think we will see more aggressive hedging to lock in a decent year among investment managers. While basic hedging is actually a positive for the market (those who hedge don't need to sell their shares into a decline!), I would still expect a few more 2% to 4% down days this month, with a nervous sideways trading into early December as all eyes focus on Washington and the 'cliff'.

OptionsProfits can be followed on Twitter at

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
Top Rated Stocks Top Rated Funds Top Rated ETFs