Major Options Sentiment Indicators Show Surge in Fear, Despair

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An already awful Thursday turned horrific for the Nasdaq 100 by early afternoon. The technology stock index swooned 6%, as fear and despair surged among some of the options market's sentiment indicators.

"The carnage is gigantic," said Jay Shartsis, options strategist at

R.F. Lafferty

in New York.

The

Chicago Board Options Exchange

equity put/call ratio and the

CBOE Volatility Index

, or VIX, were both displaying a fair level of anxiety among traders. The CBOE equity put/call ratio has remained relatively high yesterday and today, while the VIX has surged today.

Contrarian traders like to see a lot of pessimism and fear in sentiment indicators. The higher the level of fear, the closer the market is to turning the corner and rallying, they figure. So high readings in the equity put/call ratio and the VIX are bullish signs to contrarians. While those indicators aren't particularly screaming buy just yet, some market pros think the market is getting close.

The equity put/call ratio was at 0.76 at midday, showing that 76 puts traded for every 100 call options. A put option gives the purchaser the right, but not the obligation, to sell a security for a certain price by a specific time. Generally, investors buy put options either to speculate on further downside for the underlying security or as protection against a long position in the stock. A call option gives the buyer the right, but not the obligation, to buy a security for a certain price by a specific time. Investors in general buy call options to speculate on a stock's rise.

The VIX was up 11.42% to 33.65. Generally, the VIX rises as put buying on options on the

S&P 100

increases.

Meanwhile, other gauges of how people feel about the market had some options pros puzzled.

Shartsis at R.F. Lafferty said that one sentiment indicator that he finds "curious" is the percentage of bulls in the latest

Investors Intelligence

survey of financial advisers. The reading had 55% of advisers bullish, a lot of optimism "in the face of complete catastrophe," he said. Shartsis did note that there were other sentiment surveys that showed less bullishness, however.

Shares of

JDS Uniphase

(JDSU)

and

Ciena

(CIEN) - Get Report

continued to tumble Thursday, piling on to an already painful path. Options volume on both stocks was heavy Wednesday.

Puts were the options du jour on Ciena and JDS on Wednesday, particularly JDS. According to

McMillan Analysis

, of Morristown, N.J., a total of 103,961 contracts traded on JDS Wednesday, 65,826 of which were put options. The average daily volume for JDS options is 37,622, according to McMillan.

On Thursday, shares of JDS tumbled $5.56, or 9.7%, to $51.94. Shares of JDS bottomed out at $51.81, a 52-week intraday low. Volume was notable on the

Philadelphia Stock Exchange

for JDS December 50 puts. More than 2,100 puts traded. The puts were up 2 7/8 ($287.50) to 5 1/4 ($525).

Meanwhile, the performance of Ciena's stock over the past month or so has been nothing short of pitiful. Ciena, an optical networking equipment maker, has seen its stock plummet since it traded at all-time highs in October. On Oct. 20, it traded as high as $151 a share. On Thursday, Ciena fell $2.38 to $70.63.

Volume in Ciena options wasn't heavy today. On the PHLX, the December 70 puts were up 1 1/4 ($125) to 8 3/4 ($875).