Put-Call Ratio: Puts Against Calls and What 1.6 Means

The number obtained by dividing the total put open interest on an index or stock by the total call open interest shows whether the outstanding options positions lean towards puts or calls. A reading above 1 means puts are higher than calls, and a reading below 1 means calls are higher than puts.

Individuals asking what is put call ratio will find that it is written as the put-call ratio (PCR) in most market reports, and it is a positioning gauge and not a direction call.

Indian traders mostly use the open interest version, which counts contracts still outstanding, while the volume version uses the contracts traded in the day.

How PCR is worked out on NSE

On the NSE option chain, traders add the put open interest of all strikes, add the call open interest of all strikes and divide the first total by the second.

In a hypothetical case, put open interest of 1,30,000 contracts against call open interest of 1,00,000 contracts gives 1.3, so puts are 30% above calls.

Open interest means the total outstanding contracts held by market participants at the close of the trading day.

The figure also depends on the expiry or series chosen, so expiry-wise and all-expiry readings will differ for the same index.

Why traders watch it and a common mix-up

Traders use the ratio as a quick read of how options positions are stacked on Nifty, Bank Nifty and large futures and options (F&O) stocks. Thinly traded stock options give unreliable readings.

Some data vendors treat a reading of about 0.8 to 1.2 as neutral, but such thresholds are conventions and not rules.

Some analysts read a high PCR as supportive, as option writers hold much of the open interest, while others do not treat it as a sign of direction.

The open interest version is mixed up with the volume version, which counts the day's trading.

The two can differ for the same day, and the expiry chosen changes the figure, so two sources can show different numbers without either being wrong.