The put-call ratio (PCR) is probably the most popular single number in Indian index options. It is easy to calculate, easy to quote, and very easy to over-interpret.
How it’s calculated
The most common version uses open interest:
PCR (OI) = total put open interest ÷ total call open interest
So if Nifty options for the current expiry have 1.2 crore contracts of put OI and 1.0 crore of call OI, the PCR is 1.2.
There is also a volume PCR, which uses the number of puts and calls traded during the day instead. It moves faster and is noisier. When someone quotes “PCR” without saying which, they almost always mean the OI version.
The two opposite readings
Here is the problem. A high PCR, say above 1.3, gets read in two contradictory ways:
- The writer’s reading: lots of puts are open because traders are selling puts, which they do when they expect the market to hold up. High PCR = support underneath = bullish.
- The hedger’s reading: lots of puts are open because investors are buying protection, which they do when they’re worried. High PCR = fear = bearish, or at least cautious.
Both happen, often at the same time, and PCR alone cannot tell you which one dominates. That’s why the same reading can precede a rally one month and a fall the next.
The contrarian angle
Many traders use PCR at the extremes, as a contrarian gauge. When it is unusually high, the crowd is heavily positioned for one outcome, and markets often punish crowded positioning. When it is unusually low, the opposite applies.
“Unusually” is the important word. A PCR of 1.1 means little. What matters is where today’s reading sits against its own recent range for that index and expiry.
Using it sensibly
- Compare like with like. Nifty and Bank Nifty PCRs behave differently. So do weekly and monthly expiries.
- Watch the trend through the day, not one snapshot. A PCR climbing steadily as price rises tells a different story from one spiking as price falls.
- Pair it with strike-level OI. The open interest explainer covers where the positions actually sit.
- Never trade it alone. PCR describes mood. Price decides outcomes.