One such tool is put call ratio which indicates the prevalent trend in the market for an index or a stock.
Remember to use the same in correlation with the tools specified in the procedure to become a technical analysis here.
Put-call ratio (PCR)
Put-call ratio (PCR) is computed by dividing the number of puts (contracts) by the number of calls (contracts). Since the strike price of options is exchange-determined, the number of calls is indicative of buying interest and puts the selling interest.
- If calls are more than puts, the market is bullish, and the PCR is less than 1.
- As the markets move down, PCR increases, indicating bearishness.
- PCR is used as a contrarian indicator by traders, when it trades at extreme values.