Put Call Ratio

The put call ratio is calculated by dividing the total open interest in put options of an underlying by the total open interest in call options of the underlying. Suppose the OI of put options on stock ABC is 120 and the OI of call option on the same stock is 100, put call ratio will be 1.2 (120/100).

Put call ratio is used to understand the mood of the options market. A high put call ratio indicates that open interest in put options are more than the open interest in the call option and sentiment is bearish in the market. Similarly a low put call ratio indicates that open interest in call options is more and the market sentiment is bullish. Thus, it is important to determine what is considered as high and low for the put call ratio. One can track the historical ratio and then compare the same with the current number to determine or gauge the sentiment around a stock or index.