What is the Put-Call Ratio?

The Put-Call Ratio (PCR) compares put activity with call activity. It is commonly calculated using either open interest or trading volume. Mathematically, an open-interest-based PCR can be calculated as follows:

PCR = Put Open InterestCall Open Interest

For example, suppose an index has 12 lakh put contracts in open interest and 10 lakh call contracts. Now,

PCR = 12 lakhs10 lakhs = 1.20

As per general market understanding, a PCR above 1 means the “put open interest” is higher than the “call open interest”, while a PCR below 1 means the “call open interest” is higher.

How to Perform a Put-Call Ratio Analysis in NSE?

To make a deep put-call ratio analysis on NSE, traders may examine PCR alongside:

• Price movement
• Changes in open interest
• Option strikes, and 
• Market conditions.

A high or low PCR should not be interpreted as an automatic bullish or bearish signal. That’s because both put and call positions represent different strategies, including hedging and option selling. 

When learning “how to use the put call ratio”, realise that PCR only describes the positioning or activity reflected in the selected dataset. It does not provide any standalone forecast.

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