PCR (PUT CALL RATIO)
What is PCR???
The Put/Call Ratio is an indicator that shows put volume relative to call volume of particular strike price of the particular contract. In simply the ratio is the trading volume of put options divided by the trading volume of call options.Put options are used to hedge against market weakness or bet on a decline. Call options are used to hedge against market strength or bet on advance.In other word a put option is market insurance against declining prices, and a call option is market insurance against rising prices. So, when the ratio is relatively high, this means that the majority of investors expect the market to decline (bearish). When the ratio is relatively low, we can conclude that the majority of investors are confident that the market should rise (bullish). But Most of the time, the market proves the majority wrong.
The Put/Call Ratio is above 1 when put volume exceeds call volume and below 1 when call volume exceeds put volume. Typically, this indicator is used to gauge market sentiment.
Total contracts of put total OI of put
PCR (Put Call Ratio)= -------------------------- or -----------------
Total contracts of call total OI of call
How to use PCR???
- PCR is in the range of 0.80 - 1.10 Then trend will be in neutral
- PCR is above 1.10 then more no.of puts added in that contract, so we may conclude market may go down from the current level.
- Suppose PCR go above 1.30-1.40 then, instead of moving down trend reversal may come. ie Market may reach oversold level, so again may go up from there. So we have to close our short position.
- PCR is below 0,80 then more no.of calls added in that contract , so we can conclude market may go up from the current level.
- Suppose PCR go below 0.60 then , instead of moving up trend reversal may come, ie Market may reach overbought level, so again may go down from there. So we have to close our longs.
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NSEBSENOW
