put and call ratio

Put and call ratio: Things to Know

One of the most widely used indicators by investors is the Put-Call Ratio. It helps the traders to determine the overall sentiment of the market and spot trend reversal points before they become apparent. The put and call ratio is a derivative indicator used by the traders to analyze whether other traders are in a selling or buying mood. There is a formula used to calculate a put-call ratio. It is calculated by dividing total put volume by total call volume over a specific period.

What is Put and Call?            

A put option is a right to sell an asset at a predetermined price and time. If traders are buying more puts than calls, it is known to be the bearish sentiment.

A call option is referred to as a right to sell an asset at a preset price and time. If traders buy more calls than puts, then it suggests a bull market ahead.

If the put and call ratio is higher than one, it suggests that traders have purchased more call options. On the other hand, if it shows lower than 1, then it should be understood that traders have purchased more put options than call options.

How it is helpful for traders?

The Put/Call Ratio is a hybrid tool that can be used in both technical and fundamental analysis. One of the significant tools for gauging the overall sentiment of the market is a put-call ratio. Before you check the chart make sure that you understand the basic relation. If the ratio is higher, then it implies that the market is going to be bearish. Whereas if the ratio is lower, then the sentiment is bullish. With the help of this tool, you can have a comprehensive approach that is less likely to encounter losses. Hence, utilize this unique investment tool that helps to analyze the market sentiment.