PCR Ratio

The Put-Call Ratio (PCR) is calculated by dividing the total trading volume of put options by the total trading volume of call options. Put options are generally used for hedging or bearish speculation, while call options are used for bullish speculation. The ratio provides a real-time measure of market participants' collective sentiment.

• High PCR (e.g., > 1.0 or extreme peaks): This indicates that the market is buying more puts than calls. The crowd is fearful and bearish. Contrarian Signal: Bullish. When everyone is expecting a crash, the market often has already "priced in" the fear and is ready to rally.
• Low PCR (e.g., < 0.7 or extreme troughs): This indicates that the market is buying more calls than puts. The crowd is greedy and bullish. Contrarian Signal: Bearish. When everyone is euphoric and betting on further gains, the market is usually overbought and vulnerable to a correction.

The PCR is most effective at extremes. Don't trade just because the ratio is slightly moving; wait for the PCR to reach historical high or low levels. When it does, look for confirmation in price action (a reversal pattern on the chart) before taking a position against the crowd.