Put-Call Ratio

Trading

Quick Definition

Put-Call Ratio (PCR) is a technical indicator that measures the ratio of put options traded to call options traded, used to gauge market sentiment.

Detailed Explanation

Put-Call Ratio is widely used in derivatives trading to understand whether investors are bullish or bearish.

  • Put Options: Indicate bearish sentiment (expect price fall)
  • Call Options: Indicate bullish sentiment (expect price rise)

PCR is commonly analyzed in markets like derivatives trading on the National Stock Exchange and Bombay Stock Exchange, regulated by the Securities and Exchange Board of India.

Formula

👉 PCR = Total Put Volume ÷ Total Call Volume

Interpretation of PCR

  • PCR > 1: More puts → Bearish sentiment
  • PCR < 1: More calls → Bullish sentiment
  • PCR ≈ 1: Neutral sentiment

Why PCR Matters

  • Helps identify market trends
  • Used in technical analysis
  • Indicates investor sentiment

Important Note

PCR is often used as a contrarian indicator (extreme values may signal reversal).

Example

"If 1,000 put options and 800 call options are traded: 👉 PCR = 1.25 → Bearish sentiment"

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