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7.7- Put/Call Ratio

 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.