Put–Call Ratio Explained: What is PCR, Why It Matters & How You Can Use It

What is Put Call Ratio? (Or, If You Prefer: What is PCR?)

Let’s break it down. The PCR full form is Put–Call Ratio. This tool compares the number of put options being traded to call options within a specific period—often a single trading session.

Now, if you're wondering what is put call ratio actually used for, here’s the simplest answer: to gauge market sentiment. When more investors are buying puts (which benefit from falling prices), the PCR rises. When more are buying calls (betting on prices going up), the PCR drops.

Formula for PCR ratio:

Put Call Ratio = Number of Put Options Traded ÷ Number of Call Options Traded

You might also hear people talk about volume-based PCR (which uses daily traded contracts) and open interest-based PCR (which considers the total outstanding contracts). Both are valid, and each offers slightly different insights.
 

How to Interpret the PCR Ratio

You’ve probably heard this before: numbers mean nothing without context. That’s especially true with the PCR ratio. So as a thumb rule, 

• PCR > 1: More puts than calls
• PCR < 1: More calls than puts

At first glance, a higher PCR might suggest bearishness, since more puts are open. But the key is understanding why those puts exist.

A high PCR doesn't necessarily mean traders are buying puts out of fear. In fact, it often indicates more put writing—a strategy used when traders expect the market to remain flat or rise.

• Put Buyers = Bearish
• Put Writers (sellers) = Neutral to Bullish

In most market environments, put writing dominates, especially by institutions seeking to earn premiums in a stable or rising market. So, a rising PCR generally reflects growing confidence that downside is protected.
 

Here’s a quick PCR Cheatsheet:

Still, it’s never wise to rely on PCR alone. Think of it more as a market mood barometer than a forecast model.

Real-Life Uses: Why Traders Rely on the Put Call Ratio

Over the years, seasoned traders have found many practical ways to use the Put-Call Ratio (PCR). Some use it to fine-tune entry and exit points during volatile phases, while others rely on it to validate signals from chart patterns or technical indicators.

Take this example: suppose the PCR for the Nifty index rises to 1.3. At first glance, it may seem like the market is turning bearish—but in reality, such a rise typically suggests increased put writing, reflecting a bullish-to-neutral undertone. Traders are confident the index will hold above key support levels.

On the flip side, if the PCR drops to around 0.5, it often signals excessive call writing, which may point to over-optimism or an overbought market, raising the possibility of profit-booking or a short-term correction.

In short, PCR doesn’t predict the future—it reflects current sentiment dynamics. And if interpreted in the right context—alongside price action and open interest trends—it can offer a significant edge in staying ahead of the curve.
 

But Wait—PCR Isn’t a Magic Wand

Let’s be honest: no indicator is perfect. The put call ratio can be misleading during periods of institutional hedging, sudden news shocks, or expiry-driven adjustments. Also, options data can be noisy—just because traders are buying puts doesn’t always mean they’re bearish; they could be hedging long positions.

And then there's the human element. Sometimes, traders overreact. Other times, they underreact. So always pair PCR with context—volatility readings, trend indicators, volume spikes, and news flow. Use it as a supporting actor, not the star of the show.
 

Final Thoughts: What is PCR Really Telling You?

Understanding what is PCR isn’t just about crunching numbers. It’s about learning to read the room—the trading room, in this case. The put call ratio gives you insight into the prevailing emotion behind market moves. Fear. Greed. Uncertainty. Euphoria. PCR tries to captures it all in one simple number.

And once you start reading it regularly, it becomes second nature. Much like weather forecasts, it won’t always get it right—but it’ll help you carry an umbrella when the sky looks cloudy.