If you’ve been actively trading or even casually following the Indian stock market, chances are you’ve come across the term Put to Call Ratio (PCR). But what exactly does it mean? Is it just a complicated number or can it actually help you make better trading decisions?
In this article, we’ll break down the Put to Call Ratio in simple terms, explain how it works in the context of the Indian stock market, and show you how smart traders use it to gauge market sentiment and fine-tune their strategies.
Let’s dive in!
What is Put to Call Ratio (PCR)?
The Put to Call Ratio is a sentiment indicator used in options trading. It measures the ratio of put option volume to call option volume in the market.
Formula:
PCR = Total Put Open Interest / Total Call Open Interest
- A put option is typically bought when traders expect the market to go down.
- A call option is usually bought when traders expect the market to go up.
So, the PCR gives us a snapshot of how traders are feeling — whether they’re bullish or bearish.
Why is Put to Call Ratio Important?
In a market like India, where Nifty 50 and Bank Nifty options trading is booming, the Put to Call Ratio has become a go-to tool for understanding sentiment shifts.
Here’s why traders love using PCR:
- 📊 Real-time sentiment analysis
- 🔍 Spotting overbought or oversold conditions
- 📈 Timing trend reversals
- 🧠 Confirming other technical signals
In short, PCR helps you read the mood of the market.
How to Interpret Put to Call Ratio
Understanding PCR values is crucial. Here’s a basic guide:
1. PCR < 0.7 — Extremely Bullish Sentiment
More call options are being bought, indicating strong bullishness. But be cautious — extreme bullish sentiment could mean the market is overbought and due for a correction.
2. PCR between 0.7 – 1.0 — Neutral Zone
This is considered a balanced market with no clear bias. Ideal for swing traders to look at other indicators for confirmation.
3. PCR > 1.0 — Bearish Sentiment
More put options are being bought, suggesting traders expect a fall. However, extreme bearishness (PCR > 1.3) could also signal a market bottom and potential reversal.
Types of Put to Call Ratio
There are two major types of PCR used by Indian traders:
📌 1. Volume-based PCR
- Based on the daily trading volume of puts and calls.
- More useful for short-term intraday or swing trades.
📌 2. Open Interest-based PCR
- Based on the open interest (OI) of put and call options.
- Better for identifying broader market sentiment and positional trades.
Example from Indian Market: Nifty PCR in Action
Let’s say the Nifty 50 PCR suddenly spikes to 1.4, and technical indicators are showing RSI near oversold levels. That’s a red flag — too many people are buying puts, expecting a crash.
In such cases, smart money might start buying, anticipating a short covering rally. This is how PCR can help you identify contrarian opportunities.
📈 Case Study: In April 2023, Nifty PCR touched 1.45 during a minor correction. Within a few days, the market bounced back over 300 points as shorts started to unwind.
Where to Track Put to Call Ratio in India
You don’t need to calculate PCR manually — it’s readily available on several platforms:
- NSE India website – Real-time options data
- StockEdge App – Clean UI with PCR charts
- Upstox Pro & Zerodha Kite – Option chain with OI data
- Sensibull & Opstra – Advanced PCR analysis tools
How Smart Traders Use PCR in Their Strategy
Here’s how Indian traders combine PCR with other tools:
✅ Combine with RSI/MACD:
If PCR is above 1.2 and RSI is below 30 → Possible bottom formation.
✅ Watch for Divergences:
If the market is going up but PCR is also rising → Caution! Trend might reverse soon.
✅ Use in Expiry Week:
In F&O expiry week, PCR helps understand where the maximum pain is for option writers — a clue to where expiry might settle.
PCR of Nifty vs Bank Nifty: What’s the Difference?
- Nifty PCR is more stable and reliable due to diversified sector representation.
- Bank Nifty PCR is more volatile and sensitive to interest rate or banking news.
👉 Pro Tip: Use Nifty PCR for broader market view and Bank Nifty PCR for aggressive trades.
Limitations of Put to Call Ratio
Like any indicator, PCR is not foolproof. Keep in mind:
- It’s a contrarian indicator, so high or low doesn’t always mean reversal.
- PCR is best used with other technical/fundamental analysis.
- Sharp news events (like RBI policy or budget day) can distort PCR temporarily.
Summary: Key Takeaways on Put to Call Ratio
- PCR is a powerful sentiment indicator used widely in options trading.
- A high PCR suggests bearishness, and a low PCR indicates bullishness.
- Indian traders use both volume-based and OI-based PCR to make trading decisions.
- Combine PCR with other tools for better accuracy.
- Always watch for extreme values and possible reversals.
Frequently Asked Questions (FAQs)
Q1: What is a good PCR value?
A PCR value between 0.7 and 1.0 is considered neutral. Values above or below that can indicate bullish or bearish sentiment.
Q2: Can PCR be used for intraday trading?
Yes, especially the volume-based PCR. But it’s more reliable when used with other indicators.
Q3: Is PCR only useful for Nifty?
No, PCR is available for Bank Nifty, stocks like Reliance, TCS, Infosys, etc., and is useful for all actively traded options.
Final Thoughts
If you’re serious about stock trading in India — especially in the F&O segment — the Put to Call Ratio is a tool you can’t ignore. It gives you an edge by revealing the market’s emotional undercurrent — fear, greed, confusion — all in one simple ratio.
Whether you’re trading Nifty, Bank Nifty, or stock options, PCR can guide you to trade with the sentiment, or smartly go against it when the crowd is wrong.
So next time you’re planning your trade, don’t just look at charts — check the Put to Call Ratio and see what the market is really feeling