Put Call Ratio (PCR) is one of the most widely used sentiment indicators in options trading. By comparing put activity with call activity, traders attempt to understand how options market participants are positioned. PCR is not a forecasting tool, but it can provide useful context when analysed alongside price action, open interest, and broader market conditions.

How Is Put Call Ratio Calculated?

PCR based on Open Interest is calculated by dividing the total Put Open Interest by the total Call Open Interest. It can also be calculated using traded volume.

Understanding PCR Values

Lower PCR values (e.g., below 0.7) generally indicate strong call activity relative to puts, reflecting a bullish sentiment bias. Higher PCR values (e.g., above 1.3) indicate stronger put activity or panic hedging, reflecting a cautious or relatively bearish sentiment. A PCR around 1.0 represents a balanced distribution. Note that these are helpful guidelines and not absolute rules; each market asset may have its own natural baseline range.

Why Do Traders Monitor PCR?

Traders monitor Put Call Ratios to gain multi-layered insights. Since options writers are typically well-capitalized institutions, tracing where puts or calls are being aggressively shorted provides indicators of where the "smart money" is establishing pricing boundaries. This helps options chain analysts evaluate trend stability and identify support levels.