Put-call ratios
A positioning gauge that is also a hedging gauge.
Put-call ratios
| Concept | Explanation | |---|---| | Put option | Contract generally used for downside exposure or protection. | | Call option | Contract generally used for upside exposure. | | Volume put-call ratio | Put volume divided by call volume. | | Open-interest put-call ratio | Outstanding put contracts divided by outstanding calls. | | Contrarian reading | An unusually high ratio may reflect fear; an unusually low ratio may reflect optimism. | | Important limitation | Options are also used for hedging, income, and complex spreads. |
Key idea: Put-call ratios should be compared with their historical range, asset class, and participant base.