Put Call Ratio Definition, Formula & How to Use | 2026

Put Call Ratio Definition: The "Fear and Greed" Meter of the Market

Every time the market tanks, it feels like everyone’s rushing to sell. When stocks are flying high, suddenly everyone wants in. But how do you really know just how anxious or greedy the crowd is getting?

That’s where the Put Call Ratio—or PCR—comes in. It’s a straightforward formula that looks past price charts and technical indicators like RSI or MACD. Instead, PCR zooms in on what traders are actually doing. It shows you where the so-called “smart money” and the masses are placing their bets.

What is the Put Call Ratio Definition?

The Put Call Ratio (PCR) is a derivative indicator that measures the trading volume or open interest of Put options relative to Call options.

• Puts are bought when traders expect the market to fall (Bearish).
• Calls are bought when traders expect the market to rise (Bullish).

By comparing these two, the PCR tells us if the market is currently dominated by bears or bulls. It acts as a sentiment indicator—showing whether the crowd is feeling optimistic or pessimistic.

The Put Call Ratio Formula

There are two ways to calculate the option put call ratio: based on Volume or Open Interest (OI). In India (Nifty/Bank Nifty), traders mostly use the Open Interest method.

PCR ={Total Put Open Interest}/{Total Call Open Interest}

Example Calculation:

Imagine the Nifty 50 Option Chain shows the following data for a specific expiry:

• Total Put OI = 20,00,000 contracts
• Total Call OI = 15,00,000 contracts

PCR ={2,000,000}/{1,500,000} = 1.33

How to Interpret the PCR

The Put-Call Ratio (PCR) is traditionally interpreted from two primary "angles" or perspectives: the standard (buyer's) view and the contrarian (seller's) view. 

1. The Option Seller’s Angle (Contrarian View)

Experienced traders often view the PCR through the lens of the option seller (or "writer"), because sellers are typically institutional investors or "smart money" with significant capital and better information. 

Market Extremes: When the PCR reaches extreme levels (e.g., above 1.5 or below 0.5), it is used as a contrarian indicator. An extremely high PCR can signal the market is "oversold" and due for a bullish reversal, while an extremely low PCR can signal it is "overbought" and due for a correction.

Low PCR (< 1.0): Conversely, a low PCR indicates sellers are writing more call options, signaling a bearish or range-bound outlook.

High PCR (> 1.0): From this angle, a high PCR suggests that sellers are aggressively writing put options, indicating a bullish outlook where they expect the market to stay above certain levels.

Perspective: Option sellers write (sell) puts when they are bullish and write calls when they are bearish.

2. The Standard Angle (Buyer's View)

This view assumes the ratio reflects the simple sentiment of the majority of traders (often retail buyers). 

Neutral Point: Because more traders naturally prefer buying calls, a ratio of 0.7 is often considered the actual neutral benchmark rather than 1.0. 

Low PCR (< 1.0): Indicates more calls are being bought than puts, signaling bullish sentiment.

High PCR (> 1.0): Indicates more puts are being bought than calls, signaling bearish sentiment.

 PCR Interpretation

Volume PCR vs. OI PCR: Which is Better?

• OI PCR (Open Interest): Best for Positional Trading. It shows the accumulated positions over days. It is more stable and reliable for swing trading.
• Volume PCR: Best for Intraday Trading. It shows what is happening right now. It is very volatile and changes rapidly throughout the day.

 The Secret Weapon: PCR Divergence

While the absolute number of PCR is important, the trend of the PCR is often more powerful.

Just like RSI divergence, PCR Divergence can signal a market reversal before price action confirms it.

Key Takeaway: If the market is making a New High, but PCR is making a Lower High, be careful. The rally might be a trap.

PCR + Option Chain: Finding Support & Resistance

Don't just look at the ratio; look at where the volume is.

• High PCR (e.g., 1.4) + Max Put OI at 21,000:This confirms that 21,000 is a Strong Support. Option writers are confident the market won't break this level.
• Low PCR (e.g., 0.6) + Max Call OI at 21,500:This confirms 21,500 is a Strong Resistance. Writers have created a "ceiling" here.

Index PCR vs. Stock PCR

Does PCR work on every stock? No.

• High Liquidity: The data is reliable because millions of contracts trade daily.
• Smart Money: Institutions dominate here, making the PCR a true reflection of "Smart Money" sentiment.
• Low Liquidity: Many F&O stocks have thin volume. A single large order can skew the PCR instantly.
• Manipulation: It is easier to manipulate stock options than an entire index.
• Advice: Stick to analyzing PCR for Nifty and Bank Nifty for the highest accuracy.

Individual Stocks:

Indices (Nifty/Bank Nifty):

The Expiry Day Warning

PCR is highly effective on most days, but it behaves differently on Weekly Expiry (Tuesday).

• Zero-Hero Trades: Retail traders buy cheap OTM options in bulk on expiry day. This volume is "speculative," not "smart money."
• Square-Offs: As positions close, OI drops rapidly, causing the PCR to swing wildly.
• Rule: On Expiry day, rely more on Price Action and VWAP than just PCR, especially after 2:00 PM.

Conclusion

The Put Call Ratio is one of the few indicators that allows you to see "under the hood" of the market. While a rising PCR generally indicates support building up (bullishness in the contrarian view), a crashing PCR indicates that resistance is becoming stronger.

Pro Tip: Never use PCR in isolation. Combine it with price action (Support/Resistance) for the best results.

FAQs

1. What is considered a "Good" PCR value for buying?

From a contrarian perspective, a PCR below 0.50 is often considered a good buying opportunity (Oversold zone). Conversely, if you are a trend follower, a PCR rising above 1.0 indicates bears are taking control, suggesting a selling opportunity.

2. Where can I check the Live Put Call Ratio? 

You can check the live PCR on the NSE India website (under Option Chain data) or on trading platforms like Firstock. Most modern sebi registered broker terminals calculate this automatically for you.

3. Does PCR work for Intraday Trading? 

Yes, but for Intraday, it is better to track the Change in PCR rather than just the absolute number.

• Example: If Nifty is falling but PCR is rising, it indicates that Puts are being written aggressively to support the price (Bullish divergence).

4. Why is high PCR considered Bullish by some traders?

This is the "Contrarian" logic. A very high PCR (e.g., 1.7) means everyone has already bought Puts (betting on a fall). If everyone is already bearish, there are no fresh sellers left. Any small positive news can trigger a "Short Covering" rally, pushing the market up.

5. Can I use PCR for all F&O stocks?

It is not recommended for illiquid stocks. PCR works best for Nifty, Bank Nifty, and highly liquid stocks (like Reliance, HDFC Bank, Infosys). In low-volume stocks, a single large order can skew the ratio, giving false signals.

Disclaimer: Investments in securities market are subject to market risks, read all the related documents carefully before investing.