Put/Call Ratio

The put/call ratio is a number that compares how many put options traded to how many call options traded over some period, usually a single day. A put option gives its buyer the right to sell a stock at a set price, and is generally bought by someone betting the price will fall or wanting to protect against a drop. A call option gives its buyer the right to buy a stock at a set price, and is generally bought by someone betting the price will rise. Because puts tend to be favored by bearish or protective traders and calls by bullish ones, the mix of the two is used as a rough gauge of market mood.

The ratio itself is simple arithmetic: take the total number of put contracts traded and divide it by the total number of call contracts traded. If 8,000 puts and 5,000 calls trade in a stock on a given day, the put/call ratio is 8,000 divided by 5,000, or 1.6. A ratio around 1.0 means roughly equal put and call volume; above 1.0 means puts dominated; below 1.0 means calls dominated.

The nuance that trips people up is that this is a sentiment gauge, not a price predictor, and it's frequently read backwards by beginners. A very high put/call ratio is traditionally called "bearish" because it shows heavy demand for puts, but many traders treat extreme readings as contrarian signals — when almost everyone is already positioned bearishly (or bullishly), the crowd has less room to push the market further in that direction, so the extreme itself can precede a reversal. There's also no single official put/call ratio; different providers (exchanges, data vendors) calculate it from different option volume sets (equity-only, index-only, or combined), and levels that count as "extreme" vary by which data set and which underlying you're looking at, so it's the trend and relative extremes over time that matter more than any fixed number.