You can find out the mood of anyone with just one emoji. Right? I wish this could happen with the markets as well. Because if one doesn't understand the market sentiment in the world of options, even the best strategy can go to waste. Through this blog, we will introduce you to the emojis of traders which can help you understand the mood of the market. We are talking about the Put Call Ratio, or PCR. Read on till the end and learn three important things. First, how is PCR calculated?
Secondly, how to interpret the values? And thirdly, what is the importance of PCR in options trading? Put-call ratio tells us how many put options are there in any given period compared to call options. To calculate PCR, the total open interest of put options has to be divided by the total open interest of call options. PCR value fluctuates on or below 1. If the PCR ratio is more than 1, then more puts are bought than calls which means the market sentiment is bearish. On the other side, if it is below 1, then more calls are bought than puts which means most traders are bullish.
A very important thing to remember is that PCR is used as a contrarian indicator. This means if the PCR is very bearish, traders plan reversal trades in the market. Now the question is, which PCR value should be used for reversal trades? It is very difficult to predict the top and bottom of the market. So, traders often look at the historic numbers and reversal zones of the PCR and use them as a reference. So, traders understand the PCR and use it to understand the market's pulse and prepare their strategies. But yes, it is important to pay attention to other data points as well.
So, are you ready for options trading? Pull up the Upstox power packed option chain, the only one you will need. Find the PCR values and 10 plus data points on your screen. Start your trading journey and explore Upstox option chain today: