Stock Alpha· Ruchin Tejawat · Knowledge · 1 min read
What is Put Call Ratio (PCR)?
PCR (Put-Call Ratio) is a popular metric used in options trading to gauge market sentiment. It compares the trading volume or open interest of put options to call options over a specific period.
The ratio can provide insight into whether the market is leaning towards bearish or bullish sentiment.
Formula :- Volume of Put Options / Volume of Call Options
There are two types of PCR :-
Volume-based PCR :- Measures the ratio based on trading volumes of puts and calls.
Open interest-based PCR :- Measures the ratio based on the open interest (the total number of outstanding option contracts).
Interpreting PCR :-
PCR >1 :- More puts are being traded than calls, which could indicate a bearish sentiment. Investors are hedging or betting on a market decline.
PCR <1 :- More calls are being traded than puts, indicating a bullish sentiment. Investors expect the market or asset price to rise.
PCR =1 :- The market sentiment is considered neutral, with an equal number of puts and calls being traded.
