Put-Call Ratio
The put-call ratio (PCR) was a market sentiment indicator calculated by dividing the total open interest or volume of put options by that of call options for a given underlying and expiry, with a reading above 1.0 indicating relatively more put activity and below 1.0 indicating more call activity.
The put-call ratio served as one of the most widely cited sentiment gauges in the Indian options market. NSE published daily PCR data for Nifty and Bank Nifty based on open interest across all strikes and expiries. The ratio was interpreted as a contrarian indicator: when PCR was very high (above 1.3–1.5 for Nifty), it suggested that market participants had accumulated large put positions, potentially reflecting excessive fear or hedging demand. Contrarian practitioners viewed elevated PCR as a sign that bearish sentiment was overcrowded and a potential reversal upward was due.
Conversely, very low PCR (below 0.7 for Nifty) was read as a sign of excessive complacency or bullish positioning. If few participants had bothered to buy puts or write calls, the market might be underpricing downside risk. From a contrarian perspective, a low PCR sometimes preceded corrections. This interpretation was popularised in Indian trading circles and was regularly discussed by options traders on NSE's weekly expiry cycles.
The PCR could be computed several ways. The volume-based PCR measured the ratio of put volume to call volume on a given day — a more intraday-sensitive measure of how many contracts were traded. The OI-based PCR measured cumulative open interest across all outstanding contracts — a slower-moving, more structural measure of positioning. The two could diverge: a high OI-based PCR might coexist with a low volume-based PCR on a day when call buying surged while the underlying put OI remained elevated.
Strike-specific PCR was another refinement. Rather than looking at the aggregate ratio across all strikes, traders computed the put-call ratio at or near the current ATM level, or at specific OTM strikes, to gauge where protective hedging was concentrated. A high OI at a specific put strike relative to the corresponding call OI at the same distance OTM indicated asymmetric fear on the downside — consistent with the put skew observed across the Nifty volatility surface.
Like all sentiment indicators, the PCR worked best when interpreted in conjunction with other signals rather than in isolation. During sustained trending markets, PCR could remain elevated or depressed for extended periods without a reversal materialising. The ratio was most useful as a secondary confirming or challenging signal alongside price action, technical levels, and macroeconomic context. NSE's daily PCR publication for Nifty was freely available on its derivatives market data pages.