Put/call ratio (or put-call ratio, PCR) is a technical indicator demonstrating investors' sentiment.[1] The ratio represents a proportion between all the put options and all the call options purchased on any given day. The put/call ratio can be calculated for any individual stock, as well as for any index, or can be aggregated.[2] The ratio may be calculated using the numbers of puts and calls or on a dollar-weighted basis.
Generally, a lower reading (~0.6) of the ratio reflects a bullish sentiment among investors as they buy more calls, anticipating an uptrend. Conversely, a higher reading (~1.02) of the ratio indicates a bearish sentiment in the market. However, the ratio is considered to be a contrarian indicator, so that an extreme reading above 1.0 is actually a bullish signal, and vice versa.[3]
Moving averages are used to smooth and normalize the series of ratios.
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