What is PUT CALL RATIO PCR ?

PUT CALL RATIO (PCR)

The Put-Call Ratio is a commonly used financial indicator in options trading that measures the relative trading volume of put options to call options. It is calculated by dividing the total number of traded put options by the total number of traded call options. Put options are financial derivatives that give the holder the right, but not the obligation, to sell an underlying asset at a specified price (strike price) within a specified period of time. On the other hand, call options give the holder the right, but not the obligation, to buy an underlying asset at a specified price within a specified period. The Put-Call Ratio is used as a sentiment indicator to gauge the overall market sentiment or investor sentiment. It is based on the premise that put options are typically used as insurance or protection against potential price declines in the underlying asset, while call options are used to speculate on price increases. A high Put-Call Ratio indicates that there is a higher volume of put options being traded compared to call options. This suggests that investors may have a more bearish outlook on the market or specific stocks, anticipating potential price declines. Conversely, a low Put-Call Ratio indicates a higher volume of call options being traded relative to put options, which may imply a more bullish sentiment. It's important to note that the interpretation of the Put-Call Ratio can vary depending on the market conditions, time frame, and other factors. Traders and analysts often use the Put-Call Ratio in conjunction with other technical and fundamental analysis tools to gain insights into market sentiment and potential market reversals.

Calculation of PUT CALL RATIO

The put-call ratio is used in options trading to gauge market sentiment. It is calculated by dividing the total volume of put options by the total volume of call options traded in a given period. The formula for calculating the put-call ratio is as follows: 

Put-Call Ratio = Total Volume of Put Options / Total Volume of Call Options

To calculate the put-call ratio, you need the trading volume data for both put options and call options. The trading volume represents the number of contracts traded for each type of option. For example, let's say you have the following data for a particular trading day: 

Total Volume of Put Options = 10,000 

Total Volume of Call Options = 15,000

Using the formula, you can calculate the put-call ratio: 

Put-Call Ratio = 10,000 / 15,000 

Put-Call Ratio ≈ 0.67 

In this case, the put-call ratio is approximately 0.67, indicating that there were more call options traded than put options. A put-call ratio below 1 suggests a bullish sentiment, as more traders are buying call options to bet on rising prices. Conversely, a put-call ratio above 1 suggests a bearish sentiment, as more traders are buying put options to hedge or speculate on declining prices.