Historical Put/Call Ratios
Put/Call ratios are essential sentiment indicators that track the relative activity between put and call options, providing insights into market sentiment and potential reversals.
Types of Ratios
Volume-Based Ratios
- Put/Call Volume Ratio: Daily put volume divided by call volume
- Interpretation:
- Above 1.0: More puts traded (bearish sentiment)
- Below 1.0: More calls traded (bullish sentiment)
- Extreme readings often signal reversals
Premium-Based Ratios
- Put/Call Premium Ratio: Dollar value of puts vs calls
- Advantages: Accounts for option prices, not just quantity
- Smart Money Indicator: Large premium trades often institutional
Open Interest Ratios
- Put/Call OI Ratio: Outstanding put contracts vs calls
- Positioning Indicator: Shows longer-term sentiment
- Trend Confirmation: Rising ratio confirms bearish trends
Historical Analysis
Time Series Charts
- 2-year historical ratio trends
- Moving averages for smoothing
- Extreme level identification
Statistical Metrics
- Current Rank: Where today’s ratio sits historically
- Z-Score: Standard deviations from mean
- Percentile: Historical frequency analysis
Sentiment Signals
Contrarian Indicators
- Extreme high ratios (>1.5): Potential bottoms
- Extreme low ratios (<0.5): Potential tops
- Most effective at market extremes
Trend Confirmation
- Rising ratios in downtrends: Confirms bearish momentum
- Falling ratios in uptrends: Confirms bullish momentum
- Divergences signal potential reversals
Trading Applications
- Market Timing: Identify sentiment extremes
- Risk Management: Gauge market fear/greed
- Strategy Selection: Choose appropriate options strategies
- Confirmation Tool: Validate other technical signals
Disclaimer: Put/Call ratios are sentiment indicators and should be used alongside other analysis tools. Historical patterns may not repeat. This is not financial advice.
