The Put-Call Ratio

How to interpret it and how to use it in trades?

The put-call ratio (PCR) is a widely used indicator in options markets to gauge market sentiment. It is calculated by dividing the number of traded put options by the number of traded call options.

A put option gives the buyer the right to sell an asset at a predetermined price, while a call option gives the buyer the right to buy an asset at a predetermined price.

Interpretation

PCR > 1: Indicates bearish sentiment, as more put options are being traded than call options. Bearish sentiment refers to a negative outlook or expectation that the market or a particular security will decline in value.

PCR < 1: Indicates bullish sentiment, as more call options are being traded than put options. Bullish sentiment refers to a positive and optimistic outlook regarding the future performance of a market or specific asset, indicating that investors expect prices to rise.

PCR = 1: Suggests neutral market sentiment

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