The Put Call Ratio (PCR) is one of the most widely used sentiment indicators in the stock market. It measures the ratio between the number of put options and call options traded during a specific period. Traders and analysts use the PCR ratio to gauge whether market participants are leaning more toward bearish or bullish sentiment.
Before diving deeper, it’s important to remember that the Put Call Ratio — often referred to as the PCR ratio — is a key element of derivative market analysis. Understanding its levels (high, low, and neutral) can help traders make better decisions about market direction and sentiment strength.
What Is the PCR Ratio?
The PCR ratio is calculated using the formula:
PCR = Total Put Open Interest / Total Call Open Interest
This ratio helps traders understand the balance of fear and greed in the market.
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When traders buy more puts, it indicates fear or bearish sentiment.
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When more calls are bought, it signals optimism or bullish sentiment.
A high or low PCR ratio level doesn’t always mean the market will move in the same direction — rather, it shows the current emotional state of market participants.
Understanding PCR Ratio Levels
To interpret the PCR ratio effectively, traders often classify its readings into three major levels: High, Low, and Neutral.
High PCR Ratio Level
A high PCR ratio indicates that traders are buying more put options than calls, showing a strong bearish sentiment in the market.
However, contrarian traders often see this as a bullish signal — because excessive pessimism might suggest that the market is oversold and could soon rebound.
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Interpretation: Overly bearish → possible market reversal upward.
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Typical Level: Above 1.0 (varies depending on market conditions).
Low PCR Ratio Level
A low PCR ratio occurs when the number of call options far exceeds put options, reflecting strong bullish sentiment.
When optimism becomes excessive, it might indicate that the market is overbought — a warning sign for a potential downside correction.
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Interpretation: Overly bullish → potential short-term weakness.
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Typical Level: Below 0.7 (approximation depending on context).
Neutral PCR Ratio Level
A neutral PCR ratio suggests a balanced market where buyers and sellers are evenly positioned. This phase typically reflects indecision and often precedes a breakout in either direction.
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Interpretation: Consolidation or sideways movement.
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Typical Level: Between 0.7 – 1.0.
How Traders Use PCR Ratio Levels in Analysis
The PCR ratio is a dynamic sentiment gauge — not a standalone indicator. Traders often combine PCR levels with other metrics such as FII/DII data, Market Mood Index (MMI), and technical indicators like RSI or moving averages.
For example:
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A high PCR with rising FII buying might strengthen a bullish reversal setup.
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A low PCR with falling MMI Index could signal a weakening trend or an overbought market.
PCR Ratio: A Sentiment Tool, Not a Prediction Machine
It’s crucial to understand that the Put Call Ratio doesn’t predict price movement directly. Instead, it helps traders interpret market psychology. High, low, or neutral readings should always be analyzed in the context of market trends, volume, and open interest changes for more reliable insights.
Understanding PCR ratio levels helps traders decode market sentiment and align their strategies with real-time shifts in Put Call Ratio trends, improving both timing and confidence in decision-making.
The PCR ratio levels — whether high, low, or neutral — provide valuable insights into market sentiment. A high PCR often signals excessive fear (potential reversal), while a low PCR points to overconfidence (possible correction). By analyzing Put Call Ratio levels alongside other technical indicators, traders can make more balanced and data-driven trading decisions.
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