Put call ratio
The put call ratio measures the sentiment of speculative option traders.
A put call ratio is computed for options in which the stock price but not more than 10% above it.
A second put call ratio is computed for options in which the stock price is below, but not more than 10% below the exercise price.
The two ratios are simply averaged to derive the overall market put call ratio.
Put call ratio indication
A high put call ratio indicates that option buyers favour put and are bearish. If the volume of option in a given period is greater than volume of put option. One may logically assume that option speculators as a group are expecting higher prices and are bullish on the market.
A low put call ratio signifies a relative dearth of put buying. If the volume of option is relatively greater than that of calls. These same speculators hold a generally bearish attitude.
Both calls and puts receive their value from the price of the stock itself and option speculators judgement of the future course of the stocks price movement.
Effect of put call ratio fluctuations
The market put call ratio is one of the most sensitive and valuable of all market indicator now in use.
A rising put call ratio greater than 0.7 or exceeding 1 means equity trader are buying more puts than calls.
A falling put call ratio below 0.7 and 0.5 is considered bullish. Since it means more calls are being bought versus puts.
Contrarian traders view
Contrarian investor use the put call ratio to determine when the market may be getting either overly bullish or too bearish.
Extremely high put call ratio would seen by a contraction as a bullish signal. A high ratio would be a sign of a buying opportunity, because contrarian would see that that the market unjustly bearish and would expect the market to adjust and Boyce higher.
Conversely when the ratio is extremely low contrarian might get worried that the market is too bullish or that the recent bullish moves are overdone.
If the put call ratio has fluctuated in a tight band or range and it suddenly bumps higher breaking the range, traders might sees as a sudden increase in bearish sentiment and position portfolio accordingly.
The put call ratio measures the sentiment of speculative option traders.
A put call ratio is computed for options in which the stock price but not more than 10% above it.
A second put call ratio is computed for options in which the stock price is below, but not more than 10% below the exercise price.
The two ratios are simply averaged to derive the overall market put call ratio.
Put call ratio indication
A high put call ratio indicates that option buyers favour put and are bearish. If the volume of option in a given period is greater than volume of put option. One may logically assume that option speculators as a group are expecting higher prices and are bullish on the market.
A low put call ratio signifies a relative dearth of put buying. If the volume of option is relatively greater than that of calls. These same speculators hold a generally bearish attitude.
Both calls and puts receive their value from the price of the stock itself and option speculators judgement of the future course of the stocks price movement.
Effect of put call ratio fluctuations
The market put call ratio is one of the most sensitive and valuable of all market indicator now in use.
A rising put call ratio greater than 0.7 or exceeding 1 means equity trader are buying more puts than calls.
A falling put call ratio below 0.7 and 0.5 is considered bullish. Since it means more calls are being bought versus puts.
Contrarian traders view
Contrarian investor use the put call ratio to determine when the market may be getting either overly bullish or too bearish.
Extremely high put call ratio would seen by a contraction as a bullish signal. A high ratio would be a sign of a buying opportunity, because contrarian would see that that the market unjustly bearish and would expect the market to adjust and Boyce higher.
Conversely when the ratio is extremely low contrarian might get worried that the market is too bullish or that the recent bullish moves are overdone.
If the put call ratio has fluctuated in a tight band or range and it suddenly bumps higher breaking the range, traders might sees as a sudden increase in bearish sentiment and position portfolio accordingly.
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