The Put-Call Ratio (PCR)
A contrarian gauge that is misread far more often than it is used well.
- Lesson
- 23
- Intermediate level
- Reading time
- 9 min
- 3 chapters
- Practice
- 4
- quiz questions and 5 FAQs
Suppose a shopkeeper counts how many umbrellas and how many sunglasses were bought this week. If umbrellas outnumber sunglasses, people are perhaps expecting rain. Or perhaps they are simply protecting themselves in case it rains. The count tells him what customers are doing. It does not tell him the weather.
The put-call ratio (PCR) is that count for options. A put option gains when the market falls and is often used as protection. A call option gains when the market rises. The PCR divides the number of puts by the number of calls. It is a popular number on option-chain pages, and it is often quoted with fixed labels such as “above 1 is bullish”. Those labels are not a law. They are one reading of a number that can be read two opposite ways.
This module shows how PCR is worked out, how the volume version differs from the open interest version, and why the same value can support a bullish story and a bearish story. It ends with what PCR cannot tell you. It is education, not a trading signal.
How is PCR calculated, and which version should you look at?
Two words to fix first. Open interest (OI) is the number of contracts still open. Volume is the number of contracts traded today. PCR can be built from either.
The open interest PCR divides total put OI by total call OI. Illustration: 90 lakh put contracts open and 100 lakh call contracts open gives 90 ÷ 100 = 0.90. The volume PCR divides puts traded today by calls traded today. Illustration: 12 lakh puts traded and 10 lakh calls traded gives 12 ÷ 10 = 1.20.
They answer different questions. Volume PCR shows today’s activity and can swing widely from hour to hour. OI PCR shows the stock of positions built up over many days and moves more slowly. A trader who opens and closes a position within the day changes volume PCR but not OI PCR. Neither is a better number in every case. Pick one, use the same one every day and compare it with its own past.
Put-call ratio: how it is calculated
Illustration with round numbers. Real values change through the day.
What it divides
Volume PCR
Put contracts traded today ÷ call contracts traded todayOI PCR
Put contracts open ÷ call contracts openSpeed of change
Volume PCR
Fast, can jump within hoursOI PCR
Slow, builds over daysNoise from day traders
Volume PCR
HighOI PCR
LowerGood for
Volume PCR
A snapshot of today’s activityOI PCR
Comparing positions across weeksCannot tell you
Volume PCR
Who bought or sold, or whyOI PCR
Who bought or sold, or why
Volume PCR compared with OI PCR. Rules are revised from time to time.
Key points
- PCR = puts ÷ calls, from either volume or open interest.
- A PCR of 0.90 means slightly more calls than puts are open. It does not say the market will go up.
- Use the same version every time, and compare it with its own past, not with a fixed label.
Why can the same PCR be read two opposite ways?
Here is the difficulty. Every open put has a buyer and a seller. A buyer of a put is usually cautious or is hedging. A seller of a put is usually comfortable that the market will not fall much. Both add to put open interest, so a high PCR can mean “many people are afraid” and can equally mean “many people are selling insurance because they are confident”. The ratio cannot tell these apart.
Some traders read extreme PCR values as a contrarian sign: when nearly everyone is on one side, the move may be tired. Others read the same number as trend-following: when put positions build during a fall, the fall may have more to go. There is no fixed threshold that works every time. What counts as “high” for NIFTY today may be ordinary next month.
A fair way to use it: note the PCR, then ask how it compares with the last few weeks for the same index, and which way it is changing. Treat it as one piece of background, like the count of umbrellas, and check it against price and other information rather than trading on it alone.
Each reading has a bullish and a bearish version. The number alone does not choose between them.
Warning
Fixed labels such as “above 1 is bullish, below 0.7 is bearish” are not established rules. Treat any such cut-off as one opinion, not a fact.
Warning
PCR on a single strike or a single day can be dominated by a few large positions, such as hedges or spreads, which say nothing about the wider market.
What does PCR not tell you, and how do you use it with care?
PCR does not tell you who is right. It does not tell you the size of the move, the timing, or whether positions are hedges, spreads or plain bets. It does not tell you how much money is behind each contract. Two contracts on different strikes can carry very different amounts of risk.
It also depends on the expiry. Near expiry, positions close and roll, and the ratio can change mainly because of that. The stock of positions on the last day is very different from what was there a week before.
The takeaway: PCR is a summary of positioning. It can describe how the crowd is placed. It cannot decide what the crowd should have done, and it cannot promise what the market will do next.
Key points
- PCR is a description of positioning, not a forecast.
- Both put buyers and put sellers raise put OI.
- A change over several days matters more than a single reading.
Step by step
- 01
Choose one version
Pick OI PCR or volume PCR. Use the same one each day so that readings can be compared.
- 02
Compare with its own past
Look at the last few weeks of the same index. Note whether today is high, low or ordinary for that index.
- 03
Note the direction of change
A PCR moving up or down over several days says more than a single reading.
- 04
Check against price
Does price agree with what the ratio suggests? If not, do not force the story.
- 05
Write the other side
Before acting, write down the opposite reading of the same number. If you cannot argue it, you do not yet understand the signal.
Common questions
It can be read either way. Some read a high PCR as fear that may be near a bottom. Others read it as growing bearishness. Because put sellers also add to put open interest, the number alone cannot decide. Compare it with its own past and with price.
Knowledge Check
Put OI is 90 lakh and call OI is 100 lakh. What is the OI PCR?
Keep reading
- Module 21Decoding the Option ChainEvery column on the NSE option chain, and the order an experienced eye actually reads them in.
- Module 22Open Interest (OI) & The Four PhasesPrice alone tells you what happened. Price read against open interest tells you who is behind it.
- Module 24Max Pain Theory for Expiry DayThe strike at which the most option buyers lose — and exactly how much weight to give it.
Written By
Rohit Singh
Mr. Chartist
With 14+ years of experience in Indian financial markets, Rohit Singh (Mr. Chartist) is a SEBI Registered Research Analyst, Amazon #1 bestselling author, and the founder of Investology — a premium trading ecosystem trusted by a 1.5 Lakh+ strong community across India.