What Is Put Call Ratio and Why Is It Important?
The Put Call Ratio (PCR) is a technical indicator that compares the trading volume of put options to call options in a specific time frame.
Formula:
Put Call Ratio=Volume of Put OptionsVolume of Call Options\text{Put Call Ratio} = \frac{\text{Volume of Put Options}}{\text{Volume of Call Options}}
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A high PCR (>1) means more traders are buying put options (bearish sentiment).
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A low PCR (<1) suggests more traders are buying call options (bullish sentiment).
Why it matters: The PCR helps traders gauge market psychology—whether fear or greed dominates.
How to Interpret Put Call Ratio for Better Trading Decisions
Understanding the levels of PCR is crucial:
| PCR Value | Sentiment | Action |
|---|---|---|
| < 0.7 | Extreme Greed (Bullish) | Be cautious of overbought conditions |
| 0.7 – 1.0 | Neutral | Balanced market sentiment |
| > 1.0 | Extreme Fear (Bearish) | Watch for potential market reversal |
Pro Tip: PCR is a contrarian indicator—when fear is high (PCR >1.2), markets often rebound as sellers are exhausted.
Put Call Ratio in Indian Markets: Nifty & Bank Nifty Focus
In India, the PCR is widely used for indices like Nifty 50 and Bank Nifty.
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Nifty PCR >1.2 = Overly bearish sentiment, possible bounce.
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Nifty PCR <0.7 = Overly bullish sentiment, risk of correction.
Popular tools to check PCR in real-time:
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NSE India website
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Fyers App
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Angel One Terminal
PCR Trading Strategies That Actually Work
a) Contrarian Strategy
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When PCR spikes above 1.2 → Start looking for bullish reversal setups.
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Combine with RSI <30 for confirmation.
b) Trend Confirmation Strategy
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PCR stays between 0.7–1.0 → Confirms existing trend strength.
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Trade in the direction of the trend.
Limitations of Put Call Ratio You Should Know
While PCR is powerful, it’s not perfect:
PCR doesn’t consider option premiums—only volumes.
Low liquidity stocks can show misleading PCR readings.
Best used with other indicators like VIX, RSI, or moving averages for confirmation.
Final Thoughts: Should You Use PCR?
The Put Call Ratio is an essential sentiment tool for every trader in 2025. Used wisely, it helps you avoid herd mentality and make smarter decisions. But remember—it works best when combined with other indicators and sound risk management.
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