Explains Of “Put Call Ratio”
Total Put Option Open Interest/Total Call Option Open Interest = Put Call Ratio
For Example: 1,00,000/80,000= 1.25
Put Call Ratio which is fondly called PCR plays a major role in trading. If the Put Call Ratio is greater than one, then the market will be on Bullish Trend, but most of the traders will expect the market in the Down Trend and will buy a huge number of Put options but the market will go up. So if the Put Call ratio is greater than one do not buy a put option or might not go for short in the Future.
Best “Put Call Ratio” Calculation:
To get Put Call Ratio, Put Option Volume will be divided by Call Option Volume. For example, if the Put Option Volume is 1,00,000 and Call Option Volume is 80,000 then Put Call Ratio will be 1,00,000/80,000 = 1.25 (Total Put Option volume / Total Call option Volume).
Now Put Call Ratio is greater than one and this is bullish trend. But some will say Bearish Trend which is a wrong suggestion. At the same time we will be able to know about Put Call Ratio from some known index or stock that is trading in future. Clearly we should be aware that if there are more buy’s in Put Option the market will not trade in down trend. At the same time if there are more buy’s in Call Option the market will not trade in upper Trend. We will be able to know this by Put Call Ratio. In Put Call Ratio we need to watch the open interest better than volume. So by calculating total put option open interest/total call option open interest, which will be the best strategy for Put Call Ratio. You will be able to know more on Put Call Ratio during training.
Live Market “Put Call Ratio”
The most important thing in Live market is to watch watch Put Call Ratio. For instance, if the index is trading at 6000 and if you calculate (5900 call option, 6000 call option, 6100 call option, 6100 put option, 6000 put option, 5900 put option) the above three strike price call option and three strike price put option which will be enough to know the Put Call Ratio. During training you will become to know when Put Call Ratio will fail.
“Put Call Ratio” Strategy
Sometimes when Put Call Ratio will be between 0.70 to 1.00 and sometimes Put Call Ratio will be above 1.25 or above 1.50. When Put Call Ratio is between 0.70 to 1.00 then the market will be in Bearish Trend and if it is above 1.25 or 1.50 then the market will be in Bullish Trend. Sometimes if Put Call Ratio will drop down from 1.50 to 1.10 or 1.15, during that time either Put option will accumulate or call options short will be build up in the market and the market tends to come down a little bit.
Put Call Ratio Impact:
Put call ratio above 1 = 80% Bullish, 20% Bearish
Put call ratio below 1 = 80% Bearish, 20% Bullish
Do not forget the market trades in this way till now. During training you can learn how Put Call Ratio is behaving in live trading in a detailed manner.