Put/Call Ratio
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Definition
Ratio of put option volume (or open interest) to call volume, used as a sentiment and hedging gauge; high readings signal fear/defensiveness, low readings complacency.
How to read it
The put/call ratio divides puts by calls. A high ratio means heavy put activity (fear or hedging), traditionally a contrarian positive; a low ratio means call-heavy speculation (complacency), a contrarian caution. Equity-only, index, and total ratios behave differently: index puts are often portfolio hedges rather than directional bets, so the equity-only ratio is usually the cleaner sentiment read. Because the baseline drifts over time (secular growth in options use), de-trending is important. A 'house P/C' can be built from a broker's own client flow.
How practitioners use it
Used as context among multiple indicators — never as a standalone signal to act.
Less common professional uses
De-trend the ratio before reading extremes: subtract a long moving average or fit a trend, because the raw level has drifted with the secular rise in options volume, so a '1.0' today is not the fear signal it was a decade ago. Index put/call is dominated by institutional hedging and can rise for benign reasons; treating an index-P/C spike as pure fear is a classic misread. Volume-based ratios react intraday; open-interest-based ratios reflect standing positioning and move slower, so state which you are quoting. 0DTE and short-dated options have distorted volume-based ratios in recent years, inflating call volume and compressing the ratio; the de-trended series partly corrects for this. Confirm with breadth or the OEX ratio: a fear spike that coincides with washed-out breadth is a stronger contrarian setup than either alone.
Sources & provenance
Cboe equity and index put/call volume; OCC option volume (for de-trended and free reconstructions); Broker internal client flow (house P/C)
This page is educational content published by Pachira Aquatica Global LLC. It is not investment advice and not a recommendation.