Puts, anyone?

Put option volume exploded Wednesday when stocks plummeted, as traders scrambled to buy puts to protect long positions in stocks and to speculate on further downside for stocks. Renewed jitters over

inflation and worries over softening corporate profits helped send stocks sharply lower.

And even as

Nasdaq Composite Index

stocks rebounded from a near-disaster at the open, traders say they're not convinced that this market has found its low point yet.

The

Chicago Board Options Exchange

equity put/call ratio and the overall options market equity put/call ratio, soared as traders and investors sent put volume soaring as the relatively rare occurrence of more puts trading than calls occurred. The CBOE equity put/call ratio soared well above the 1.00 mark, while the overall equity put/call ratio rose as high as 1.22.

The

CBOE Volatility Index

, or VIX, another indicator of market sentiment watched by options and stock market pros, popped sharply higher Wednesday, rising as high as 36.74 before settling back down. Generally, the VIX rises when put buying on the

S&P 100

TST Recommends

, or OEX, increases. Investors buy puts either to speculate on further downside for a security, or as protection.

The OEX was trading down 7.11, or 1%, to 704.53 at midmorning.

The whopping selloff was making contrarians smile, but just a little, as some feared that perhaps the market hasn't yet bottomed out. The worse the sentiment on stocks, the closer the market is to turning a corner and rallying, or so contrarian theory goes.

"I like this," said Alan Goldstein of

Five Dollar Trading

in Chicago. "I'm finally starting to see some real fear in this market." Speaking around midmorning, he pointed to the "very high" reading on the equity put/call ratio, "That's a good contrary indicator."

Goldstein cautioned, however, that the market still needs a washout, and the fact that stocks rallied so strongly off the intraday lows Wednesday morning "means we're probably not there yet."

Larry McMillan of

McMillan Analysis

, in a note to clients Wednesday before the open, said that his indicators are giving off their most oversold reading of the year. But a market being heavily oversold does not a buy signal make, he cautioned.

"We have been warning for some time that just because the market is registering massive oversold conditions, that alone is

not

a buy signal," McMillan wrote. "Being old enough to remember the bear market of 1974 and all the other nasty declines in between then and now, I can assure you that it is quite commonplace to have large one- or two-day rallies. But they don't last."