Options traders waiting to sniff some panic were getting some of it Wednesday in an ugly take off on

The Naked Gun 2 1/2: The Smell of Fear

. Unfortunately, the market's recent performance hasn't prompted as many chuckles as

Leslie Nielsen.

Still, the options market fear-indicator signals this morning had some traders optimistically thinking the market may have come close to the bottom -- which it has been scratching and fumbling to find the past month.

Some sentiment indicators closely watched by option and stock market pros, after signaling a general lack of concern about the market's condition for a long time, were giving off signs of fear Wednesday. For contrarians, this is good news. The worse the sentiment on stocks, the closer the market is to turning a corner and rallying, or so contrarian theory goes.

"I think this is the royal flush going on right now and you have to look to buy it," said Rob Sorrentino, who runs

Sorrentino Asset Management

, a hedge fund in Naples, Fla. Sorrentino, who's a contrarian, said he was enjoying the action. "I like it when it's bad."

Sorrentino said the

Nasdaq 100 unit trust

(QQQ) - Get Report

November 80 call and November 85 call options represented a play for a potential rebound. The November 80 out-of-the-money calls were trading at 4 ($400), down 7/8 ($87.50). The November 85 calls were at 2 1/4 ($225), down 5/8 ($62.50).

Sorrentino said that "a great play for the small investor" would be the

mini-Nasdaq 100

options, or MNX, which trade at the

Chicago Board Options Exchange

. The hedge fund manager said that buying an at-the-money call going out four or five months is "probably the best play on the books right now."

Professional often advise individual investors to buy options that don't expire within 30 or 60 days so if a market move is delayed, the option retains some value. Shorter-dated options -- those that expire in October or November -- are riskier because the market may take longer to turn around and as a result, leave the option worthless.

A call option is a type of option that gives the purchaser the right, but not the obligation to buy a security for a specified price at a certain time, and is for the most part a bet the stock or index will go up.

Meanwhile, some closely followed sentiment indicators were giving off bullish vibes, meaning showing signs of fear, for the market. The CBOE equity put/call ratio soared above 1.00 Wednesday morning, meaning that more put options were bought than call options, a relatively rare occurrence. At midday, the CBOE equity put/call ratio was at 0.95, dropping a bit from its peak level of the day.

The overall options market equity put/call ratio was at 0.92, after hitting a high of 0.97 Wednesday morning.

The rush for the protection of put options -- which increase in value as a stock or index value falls -- is taken to mean that enough investors are afraid on continued market weakness that the cycle is near its completion.

Also, the

CBOE Volatility Index

, which some watch as a gauge of the market's anxiety level, was up Friday, but not as much as many would like (The VIX rises when put option buying increases on options on the

S&P 100

, or OEX.).

For contrarians, low readings on the VIX are bearish, while high readings are bullish. During the April selloff, the VIX spiked as high as 41.53. At midday, the VIX was at 30.83, up 12.35%, but off an intraday high of 32.64.

Some options pros watch the VIX with a skeptical eye, however, because volume in OEX options has declined significantly over the past few years, suggesting to many that the VIX may not be as reliable a sentiment indicator as it used to be.

About a month ago, being long brokerage stocks and having bullish positions in the corresponding options was heaven. Now it's hell.

It seems that people can't buy puts fast enough on brokerage stocks lately. Part of the reason for the steep rallies in the stocks in the summer was due to heated takeover speculation in the increasingly shrinking industry.

Now all that bullishness is pretty much gone and depression is about the only thing that is visible in the sector.

One of the downside leaders in the group has been

Morgan Stanley Dean Witter

(MWD)

, whose stock has been pounded by continual chatter on Wall Street that the firm has lost a huge amount of money in junk bonds, rumors which the firm has heatedly denied. Some on Wall Street shrugged off the rumors and noted that Morgan Stanley's stock had soared very high, had become relatively expensive and was ripe for a selloff.

About a month ago, Morgan Stanley hit an intraday 52-week high of 110. The pain had yet to abate on Morgan Stanley Wednesday, with its stock off $3.56 to $70.94.

While there's more than a few investors dismissing the rumors, Tuesday was a popular day for puts on Morgan Stanley. Other brokerage stocks and financial services stocks also saw an abnormally high amount of put volume.

On Tuesday, according to

McMillan Analysis

of Morristown, N.J., of the 28,539 options that traded on Morgan Stanley, 17,102 of them were puts. The average overall volume for Morgan Stanley options is 6,448 contracts, according to McMillan.

On Wednesday, 2,700 of the Morgan Stanley in-the-money October 80 puts changed hands on the

Philadelphia Stock Exchange

. The puts were up 1 5/8 ($162.50) to 8 3/8 ($837.50).

Investors have also cast a cautious eye on brokerage stocks in recent weeks considering the awful shape of the stock market, particularly the

Nasdaq

.

Goldman Sachs

(GS) - Get Report

and

Merrill Lynch

(MER)

puts were also particularly active Tuesday, according to McMillan.

According to McMillan, average daily options volume on Goldman is 3,678 contracts, but on Tuesday 7,869 contracts traded, 6783 of which were puts. Merrill's average daily volume is 10,942 contracts, but yesterday 26,524 options traded, 17,363 of which were puts, according to McMillan.

Goldman's 52-week intraday high is 133 5/8, while Merrill's is 74 5/8. Goldman slumped $4.56 to $98.13, while Merrill gave up $2.13 to $55.88.