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How to Calculate Put-Call ratio

Updated on September 15, 2015

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Put – Call Ratio:

Ratio between traded put options and pull options within a certain period (day/week/month) is termed as put-call ratio. Put-Call ratio is one of the components which give the way of market which emerged from option trading. Investors doing option trading considers Put-Call ratio as the component which tell the opposite way of the market movement. The investors can understand the whether the market is going towards Bullish or Bearish way from Put-Call ratio.


How to Calculate Put-Call ratio:

The Put-Call ratio is calculated by using following formula

The Put-Call ratio =Total no: of traded Put options / Total no: of traded call options

For example if the no: of traded put options of reliance is 25,000 and no: of traded call options is 30,000, then according to formula.

Put-Call ratio = 25,000/30,000 =0.83

Mainly there are two types of Put-Call ratio:

1. Equity Put-Call ratio

2. Index Put-Call ratio

Equity Put-Call ratio:

It refers derivative division of equity options Put-Call ratio. In this segment also 2 types of Put-Call option.

  • Total Equity Put-Call ratio
  • Single Equity Put-Call ratio

Total Equity Put-Call ratio: It is the ratio of total equity’s put options divided by the total call options. Put-Call ratio of equities average value will be less than 1, between0.5 to 0.7. Because those who are doing trading on equity trading, buys more call options than put options.

For e.g.: Consider the trading done in NSE on 17-04-2012, the no: of put options=50,840 and call options=1, 01,680 then the Put-Call ratio will be=50840/101680=0.5

How to calculate Put-Call ratio in normal condition:

If the value of Put-Call ratio in normal condition will be equal to 1 or more than one, then the market will be a Bearish sentiment. In this time investors will buy more put options.

If the value of Put-Call ratio is 0.5 or less than 0.5, then the investors have Bullish sentiments on markets.

In some cases Put-Call ratio gives opposite sign of market, only the investors think in opposite ways.

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    • viewfinders profile image
      Author

      viewfinders 5 years ago from God's own country(kerala)

      sure i done trading.i like to tell one thing to you,if you going for online brokerage you have to study the progress of shares that you want you buy.

      Without detailed study you should not put your money.

      wishing a good future on trading

    • LucidDreams profile image

      LucidDreams 5 years ago from St Petersburg, Florida

      Have you spent some time trading options? I have considered opening an account at a brokerage online, do you have any preferences or suggestions?