Macroeconomics
What is the Put/Call Ratio and how does it function as a contrarian sentiment indicator?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
The Put/Call Ratio compares the trading volume of put options to call options, and extreme readings are often used as a contrarian sentiment indicator, with high ratios suggesting excessive fear and low ratios suggesting excessive optimism.
How it works
Contrarian traders may view a very high put/call ratio as a potential sign of oversold, fear-driven selling nearing exhaustion, and a very low ratio as a sign of complacent, overbought conditions.
An example
A put/call ratio spiking above 1.2, well above its typical range, has historically coincided with periods of elevated market fear in some cycles.
Risk & limitations
The put/call ratio can remain elevated or depressed for extended periods without an immediate reversal, and interpretation varies depending on which options data set (equity-only vs. total) is used.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.