This paper examines the effects of equity options trading and investor sentiment on common stock market returns and volatility. Both call and put option trading amplify stock price volatility. Volatility transmission is stronger for larger firms with more heavily traded options. A new market-level negative sentiment proxy, the FEARS index conveys information that is directionally similar to that provided by put option volume. However, information transmission from the market-level negative sentiment variable to the stock market is subsumed by options trading effects for the most heavily traded contracts.