Key Takeaways
- The Put Call Ratio (PCR) is a sentiment indicator showing the ratio of put options to call options traded. High PCR signals bearish sentiment (contrarian bullish for contrarians), while low PCR signals complacency. This guide explains how to interpret and use PCR for Nifty and Bank Nifty trading.
What is the Put Call Ratio (PCR)?
The Put Call Ratio (PCR) is a technical indicator calculated by dividing the total number (or Open Interest) of Put options by Call options traded in a given period.
Formula: PCR = Total Put Volume (or OI) / Total Call Volume (or OI)
PCR is widely tracked by Indian options traders for Nifty 50 and Bank Nifty to gauge market sentiment.
Types of PCR
PCR by Volume
Divides put contracts traded / call contracts traded in a session. More reactive, changes intraday.
PCR by Open Interest (OI)
Divides total put OI / total call OI. More reliable indicator of overall market positioning. Most professional traders track PCR-OI for Nifty.
How to Interpret PCR
| PCR Value | Interpretation | Signal |
|---|---|---|
| PCR above 1.3 | Heavy put buying = extreme bearishness | Contrarian BULLISH signal |
| PCR 0.7–1.3 | Neutral zone — balanced market | No clear directional signal |
| PCR below 0.7 | Heavy call buying = extreme bullishness | Contrarian BEARISH signal |
PCR as a Contrarian Indicator
PCR works on the principle that retail options buyers are usually wrong at extremes:
- When everyone is buying puts (high PCR) expecting a crash → market often bounces
- When everyone is buying calls (low PCR) expecting a rally → market often corrects
This is because option buyers are mostly retail traders, while option sellers (who take the opposite side) tend to be more sophisticated institutional players.
PCR for Nifty and Bank Nifty
PCR is most commonly used for index options:
- Track daily Nifty PCR-OI on NSE website (free data)
- Historical PCR above 1.3 has often been near short-term market bottoms in Nifty
- Historical PCR below 0.6 has often preceded short-term pullbacks
Limitations of PCR
- PCR works better for short-term market timing, not long-term trend prediction
- In strong bull or bear trends, PCR can stay in extreme zones for weeks
- Institutional hedging can distort PCR (large put buying for portfolio protection, not bearishness)
- Max Pain analysis (which strike price causes maximum option buyer losses) works better combined with PCR
Using PCR in Your Trading
- Check Nifty PCR-OI daily on NSE website or F&O section
- Note when PCR moves to extreme zones (above 1.3 or below 0.7)
- Look for confluence with technical levels (PCR extreme + key support/resistance)
- Combine with VIX — high VIX + high PCR = stronger contrarian buy signal
