The Put/Call Ratio is an indicator that shows put volume relative to call volume. 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. 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. Sentiment is deemed excessively bearish
when the Put/Call Ratio is trading at relatively high levels, and excessively bullish
when at relatively low levels. Chartist can apply moving averages and other indicators to smooth the data and derive signals.
The Chicago Board Options Exchange (CBOE
) is the biggest. Statistics from the CBOE are also the most widely followed. The CBOE indicators break down the options into three groups: equity, index and total. The CBOE Equity Put/Call Ratio ($CPCE) focuses on options traded on individual stocks. The CBOE Index Put/Call Ratio ($CPCI) focuses on options traded on the major indices, such as the Dow, Nasdaq
, Russell 2000, S&P 500 and S&P 100. Equity and index options are combined with the CBOE Total Put/Call Ratio ($CPC).
See also: http://www.cboe.com/data/putcallratio.aspx