Put / Call Ratio
Apr 19, 2020
The Put / Call Ratio indicator measures the relative volume of put options versus call options to identify bullish and bearish sentiment extremes, serving as a contrarian tool for detecting potential trend reversals.
Usage
The Put / Call Ratio is primarily used as a sentiment gauge to identify overextended market conditions. Traders often interpret extreme readings as contrarian signals:
- High Fear (Bearish Extremes): When the ratio rises above 1.30, it indicates an excess of put buying relative to calls. This "high fear" environment often precedes a potential market bottom or bullish reversal.
- High Greed (Bullish Extremes): When the ratio falls below 0.70, it indicates heavy call buying. This "extreme optimism" can signal a potential market top or bearish reversal.
- Neutral Zone: The 1.00 level represents a balance between puts and calls.
The tool includes background coloring to highlight these extreme zones, making it easier to spot potential turning points in conjunction with other technical analysis tools.
Details
The indicator fetches data for the Total Put/Call Ratio (USI:PCC) using a daily timeframe request. By monitoring the volume of options traded, the script provides insight into the positioning of market participants. The script implementation uses specific horizontal levels (0.70, 1.00, and 1.30) to provide a clear visual framework for sentiment analysis. Built-in alerts are included to notify users when the ratio crosses into the defined high-fear or high-greed territories.
Settings
- Source Data: The indicator automatically requests "USI:PCC" data from the ticker source.
- Horizontal Lines: Visual levels are set at 1.30 (Upper Extreme), 1.00 (Median), and 0.70 (Lower Extreme).
- Alerts: Conditional triggers are set for crossovers of the 1.30 level and crossunders of the 0.70 level.
FAQ
How do I use the Put / Call Ratio for trading?
It is best used as a contrarian indicator; look for bullish opportunities when the ratio is extremely high (fear) and bearish opportunities when the ratio is extremely low (greed).
What does a reading of 1.00 mean?
A reading of 1.00 indicates that the volume of traded put options is equal to the volume of traded call options, suggesting a neutral market sentiment.
How can I access the Put / Call Ratio?
You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.
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