Put/call ratio
SentimentIntermediate
The put/call ratio divides put volume by call volume, usually for an index or for the equity market as a whole. A very high ratio means more put trading and is often read as fear. A very low ratio is read as complacency. Contrarian rules fade the extreme. The ratio is a sentiment gauge, and the threshold decides the strategy.
Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.
- Rules
- Use a stated series, such as the Cboe equity or index put/call volume ratio, smoothed with a short average. A contrarian long is allowed only when the ratio is above its own historical percentile and a price rule confirms a turn. Exit when the ratio returns to its median. Do not mix equity and index ratios in one threshold. Specify whether the input is volume or open interest.
- Where AI fits
- AI can pull one defined ratio, compute a percentile on a trailing window, and ignore same-day edits to that window. It can keep a trading rule separate from a chart annotation. Fitting the percentile to the last three market bottoms will make fear look tradable.
- Markets
- Broad U.S. equity indexes, because that is what the standard ratios describe. Single-stock put/call ratios are a different, thinner series.
- Timeframes
- Daily sentiment, with holds from days to a few weeks.
- Risks
- Extremes can get more extreme in a crash. Index put/call and equity put/call mean different things and are often confused. Volume ratios jump on expiration. A contrarian buy of 'fear' is a long that can keep falling.