Put-Call Ratios by Lawrence G. McMillan
ARTICLE SYNOPSIS ...DERIVATIVES Put-Call Ratios by Lawrence G. McMillan
This measure of market sentiment uses options trading volume to measure crowd psychology. Here's one use of the ratio.
The ratio of put option volume to call option volume is the major sentiment indicator for listed options. This ratio, called the put-call ratio, is usually computed daily and moving averages are kept. The resulting indicator is a contrary one: when a great many - too many - people are buying calls, for example, then there are a great many -perhaps too many - bulls, and the interpretation as a contrary indicator would be t...