What it means
A reading above 1 means more puts than calls are open. Many Indian traders watch the Nifty's ratio, but reading it takes care: retail traders mostly buy options while large participants mostly sell them, so heavy put positions can come from confident put sellers who expect the market to hold.
Example
Put open interest of 12 million contracts against call open interest of 10 million gives a ratio of 1.2.
In practice
The ratio is a sentiment reading, usually taken from index options. Traders watch how it changes more than its level: a ratio climbing through the day shows put positions being added faster than calls.
Extremes are treated as contrary signals by some traders, on the view that a crowd leaning heavily one way has few participants left to push the market further.
What to watch for
There is no agreed meaning for any particular number, and the same reading can be bullish or bearish depending on whether the puts were bought for protection or sold for income. Use it as background, with price as the deciding evidence.
Related terms
4 terms- Open interestOIThe number of futures or options contracts that are open and not yet closed or settled.
- Option chainA table of every available option on one asset for one expiry, with calls on one side, puts on the other and strike prices down the middle.
- OptionA contract giving the right, but not the obligation, to buy (call) or sell (put) at a set price before a set date.
- India VIXThe NSE's volatility index: how much the market expects the Nifty 50 to move over the next 30 days, worked out from Nifty option prices.