The Nifty put call ratio (PCR) divides the total open interest (OI) in Nifty put options by the OI in call options, and the reading keeps changing through the trading day as positions are added or closed. Later snapshots during the day showed the ratio at 1.26 and as high as 1.86, depending on the time of the snapshot and the range of strikes included.
Many investors are seeing these different readings on the same day and wondering which one is correct. The ratio is calculated by dividing the total put OI by the total call OI for one expiry. A regulated electronic marketplace in Mumbai where buyers and sellers trade shares and other securities at publicly visible prices. Read the full meaning of NSE (National Stock Exchange) prints both totals at the bottom of its option chain and the option chain is available free of charge on nseindia.com.
A worked sum and the usual bands
The put OI stood at 371.1 lakh, while the call OI stood at 487.1 lakh, so dividing the first figure by the second gives a PCR of 0.76 for that expiry.
A reading below 1 means that more call positions than put positions are open. It records how the positions are placed on the chain, and it does not say which side will turn out to be right.
Many traders use a common rule of thumb, in which a ratio above 1.0 is read as a sign of rising prices and a ratio below 0.7 as a sign of falling prices. The range from 0.7 to 1.0 is treated as neutral. This is a convention followed by market participants, and it is not an exchange rule.
Strikes and why PCR predicts little
On the same expiry, the highest call OI sat at the 23,700 strike, while the highest put OI sat at 23,600. Traders usually read the first as resistance and the second as support, since heavy call positions above the spot level and heavy put positions below it are taken as a range.
The Nifty put call ratio is also treated as a contrarian gauge by some guides. Such guides say that no single level is good, and that a very low reading can also point to falling prices, as few new buyers remain. The guide used for the 5 October example describes PCR and max pain as summaries of positioning that are weak predictors of where index will move.
A strong move can break through either the call strike or the put strike and the bands are a convention, not an exchange rule, while the live figures are published on nseindia.com.
