Put Call Ratio (PCR) Explained in Simple Terms

What is PCR?
The Put-Call Ratio (PCR) is a popular market sentiment indicator used in option trading. It helps traders understand whether more people are buying put options (bearish bets) or call options (bullish bets) at a given time.

Put Options: Contracts betting the price will go down.

Call Options: Contracts betting the price will go up.

How to Read PCR?
PCR < 1: More call options → Bullish sentiment.

PCR > 1: More put options → Bearish sentiment.

PCR = 1: Neutral sentiment.

But extreme values often suggest the opposite:

Very High PCR: Possible market reversal upwards (too many bearish bets).

Very Low PCR: Possible market reversal downwards (too many bullish bets).

Example:
Put OI: 5,00,000 contracts

Call OI: 10,00,000 contracts

PCR = 5,00,000 / 10,00,000 = 0.5 → This indicates bullish sentiment.

Why PCR Matters?
Helps identify market mood (bullish or bearish).

Gives contrarian signals (overcrowded trades can reverse).

Used in option trading strategies for timing entry and exit.