The Put/Call Ratio gives valuable insight into investor sentiment on an underlying stock. In most cases, the put/call ratio is used as a contrarian indicator. The calculation is simple:
Put/Call Ratio = # Put Option Volume / # Call Option Volume
The higher the put-call ratio, the more the bearish investors are on an underlying stock and vice versa.
If Apple has a Put/Call ratio of 1.45, then 1.45 put contracts are being purchased for every 1 call option purchased. This would represent a bearish sentiment on the underlying stock.
Put/Call ratios can also be analyzed on overall put and call purchases on the CBOE via StockCharts.com by clicking here.
Along with the $VIX, the Put/Call ratio is a good indicator to stay up to date with how the overall market is acting.
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