Putcall Ratio or PCR is an indicator to measure the options market sentiment. PCR is a financial ratio and is used to gauge the relative trading volume of Put options to the Call volumes. The Put Call Ratio helps traders to determine the market movements and to plan their strategy accordingly. It is used as a contrarian indicator. PCR is calculated on the basis of options contracts at a given period of time or on trading volumes.
Calculation of Put Call Ratio
PCR can be calculated on the basis of volumes as well as Open Interest. On the basis of volumes of Options Trading:
Put Call Ratio = Trading volume of Puts/Trading volume of Calls
On the basis of Open Interest on a particular day: Put Call Ratio = Put Open Interest/Call Open Interest
Generally, PCR above 1 is interpreted as bearish A PCR below 1 is interpreted as bullish and means it is time to buy the stock