Put Call Ratio (PCR) 2025 Definition, Formula, Calculation & Interpretation

Put Call Ratio- Investors use a variety of financial variables to gauge market sentiment before committing their assets. The put-call ratio stands out as a very useful tool in this context. To grasp its significance and function, one must first understand its principles. In this article, we will look at the put-call ratio, its formula, and other important details.

Since the beginning of the COVID-19 epidemic, there has been an increase in stock market traders and investors worldwide. During the pandemic, trading on the stock market became one of the few feasible ways to generate money, and this trend continues.

Put Call Ratio 2025

As a result, the purpose of this essay is to look into an important part of the stock market: the Put Call Ratio. Every stock market investor should understand its relevance, as the Put Call Ratio provides insights into market sentiments, which contribute in the development of investing strategies.

Let’s look at what exactly the Put Call Ratio implies. The Put Call Ratio (PCR) is a tool in the stock market to understand how investors feel about a stock or the market’s future. It compares the number of put and call options exchanged. More puts exchanged indicates that investors expect prices to decrease (bearish). More calls exchanged indicates that investors expect prices to climb (bullish).

Put Call Ratio 2025 Overviews

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What is Put Call Ratio?

The Put Call Ratio measures investor sentiment about the future of a stock or the market as a whole. Its principle is simple: it compares the amount of put and call options traded. A put option gives the holder the right, but not the responsibility, to sell a stock at a predetermined price within a set timeframe, whereas a call option gives the holder the right, but not the obligation, to buy a stock at a predetermined price within that timeframe.

Put & Call Option

To better understand Put and Call options, let’s look at them separately.

• Put Option:Think of put options as stock insurance. By acquiring a Put option, you obtain the right to sell your shares at a predetermined price, known as the “strike price,” before a certain date, regardless of how low the stock price falls. For example, if you buy a Put option on a stock for INR 50 and the stock price falls to INR 40, you can still sell it for INR 50, despite the lower market value.
• Call Option:Call options are similar to reserving tickets for a future date at a fixed charge. When you purchase a Call option, you have the right to buy stocks at a predetermined price, sometimes known as the “strike price,” before a certain date, regardless of how high the stock price rises. If you buy a Call option on a stock for INR 50 and the price rises to INR 60, you can still buy it for INR 50, even if others pay more.

Essentially, Put and Call options are two sides of the same coin. Both have advantages: Put options are for selling, while Call options are for buying. Understanding these phrases allows you to develop tactics that align with market sentiments.

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How to Calculate the PCR?

To calculate the Put Call Ratio, just divide the total number of put options by the total number of call options traded. This ratio provides valuable insight into investor sentiment. As a result, by watching the Put Call Ratio, investors can gain insight into market sentiment and make more informed investment decisions.

Formulas to Calculate Put Call Ratio

There are two techniques for calculating the put call ratio:

• Based on Open Interest of a Specific Day: The PCR is determined by dividing the open interest in put contracts on a particular day by the open interest in call contracts on the same day.PCR (OI) = Put Open Interest / Call Open Interest
• Based on the Volume of Options Trading: In this method, the PCR is calculated by dividing the trading volume of put options by the trading volume of call options on a specific day.PCR (Volume) = Put Trading Volume / Call Trading Volume

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Put Call Ratio Interpretation

Understanding the Put Call Ratio provides significant insights into other investors’ emotions towards the market. The Put Call Ratio can result in three different outcomes, which we will examine below:

Put Call Ratio < 1: A number less than 1 indicates investor optimism. With more call options acquired than put options, investors are betting on a rising market. This condition shows a cheerful attitude, indicating, “Hey, things are looking good!”

Put Call Ratio = 1: Investors are indecisive when the Put Call Ratio equals or approaches one. They are buying nearly the same number of call and put options, showing a neutral attitude. This example demonstrates a cautious approach, similar to stating, “Hmm, let’s wait and see what happens.”

Put Call Ratio > 1: A (PCR) Put Call Ratio greater than 1 implies a pessimistic outlook. Investors are buying more put options than call options, anticipating a market fall. This situation implies a pessimistic sentiment: “Things might start to look bearish.”

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Conclusion

This finishes our explanation of the Put Call Ratio. Monitoring this ratio allows us to predict the market’s future path. A continuous increase in the ratio could be a warning indicator of an imminent slump. In contrast, a persistent decline in the ratio may imply a smoother path ahead.

Put Call Ratio FAQ’S

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