Concept
Put-Call Ratio (PCR)
The put-call ratio divides put activity by call activity. It can be computed on volume or on open interest, and the two produce different numbers with different meanings.
How to read it
- A PCR above 1 means more put activity than call activity by the chosen measure; below 1 means the reverse.
- The volume version reflects a single period’s trading. The open-interest version reflects accumulated outstanding positions and moves more slowly.
- It is conventionally read as a sentiment gauge, on the reasoning that heavy put activity indicates caution.
What it does not tell you
- Buying a put and selling a put are opposite positions that both add to put activity. The ratio cannot distinguish them, which undermines the sentiment reading at its foundation.
- A large share of option activity is hedging rather than directional. A fund buying puts against a portfolio is not expressing a bearish view in the way the indicator assumes.
- The contrarian interpretation — extreme readings preceding reversals — requires deciding what counts as extreme, which is normally chosen after seeing which levels preceded turns.
Frequently asked questions
What does a high put-call ratio mean?
That put activity exceeds call activity on the chosen measure. It is often described as bearish sentiment or, contrarily, as a bottoming signal — both readings are interpretations layered on a ratio that does not identify who did what.
What is the difference between volume PCR and OI PCR?
Volume PCR uses contracts traded in a period; OI PCR uses outstanding positions. The OI version changes more slowly and reflects accumulation rather than activity.
Is PCR a reliable indicator?
It cannot separate buyers from sellers or hedging from speculation, which are substantial limitations for a measure intended to capture sentiment. It describes relative activity, which is real, and the sentiment layer is assumption.
What PCR level is considered extreme?
There is no established threshold. Levels described as extreme are usually identified retrospectively from periods that preceded reversals.
Related
- Open Interest — Concept
- Max Pain — Concept
- Volatility: What It Measures and What It Does Not — Concept
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
Indicators describe the market. A journal describes you.
Knowing how RSI is calculated is the easy part. The harder question is whether you actually followed your own rules — CernoQuant reads your executed trades and measures the gap between what you intended and what you did.
See your own patterns →