Put-Call ratio

Options looks lucrative to a retail investor due to small premium which needs to be paid upfront for buying the options. However it is important that one understands the significance of Put-call ratio and read our advisory for retail traders before jumping into this segment.

The correct definition for Put call ratio can be obtained by dividing the volume of put options by the volume of call options. It is a sentiment indicator. In periods of panic, many traders turn bearish and hence buy put options.

The reverse is true in bullish phases. It is generally seen that investors are more optimistic in bull markets and number of call options is greater than the put options. This makes the put call ratio less than unity in bullish phases.

This ratio is also used as a contrarian indicator wherein the interpretation is contrarian to the reading. For instance, a high put call ratio is a bullish indicator since more traders turn bearish near market troughs.  Similarly a low put call ratio is bearish, since a greater number of traders turn bullish at market peaks.

The chief concern with this indicator is that it does not recognise that put and call options require writers of these options who have a contrary opinion to the buyers of these options.

Advisory for Retail Traders for Options Segment

However please understand that we do not recommend retail traders to trade in options segment due to time decay element. however if you are a High Networth individual and can undertake the risk associated with selling of the options, you must sell and pocket the premium as 95% of the time the options expire worthless. However if you are a retail trader and want to still get benefitted with non linear returns in derivative segments than you must trade in Best F&O Tips as these tips close the same day i.e. are tradable with intraday perspective. Alternatively you can also check the Intraday Nifty Tips which provides sure shot profit as one is not affected by global trends.