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Put-Call Ratio

The put-call ratio is a popular metric used in the financial markets to gauge market sentiment and potential shifts in direction. The put-call ratio serves as a valuable tool for traders to assess market sentiment, identify potential turning points, and manage risk in their trading strategies.
HOW DOES THE PUT-CALL RATIO WORK?
The put/call ratio is a measure of investor sentiment in the options market. The measurement is proportional to the total amount of calls and puts purchased in a given time period. For this indicator, we’re viewing how many contracts are being purchased each day. If there are a larger number of puts than calls in the market, sentiment is cautious and/or risk averse. If there are a larger number of calls than puts, sentiment could be viewed as bullish.

The higher the reading, the more puts to calls are present. So, a low percentage is usually a good sign that investors are optimistic in the equities options market.

How can Traders use this?

Higher value: Bearish Sentiment, Lower value: Bullish Sentiment, Puts = bearish bets, Calls = bullish bets
Sentiment Indicator
The put-call ratio is often seen as a sentiment indicator. A high put-call ratio suggests bearish sentiment, meaning investors are buying more put options (which profit from a decline in the underlying asset's price) relative to call options (which profit from an increase in the underlying asset's price). Conversely, a low put-call ratio suggests bullish sentiment.
Contrarian indicator 
Extreme levels of put-call ratio (very high or very low) can indicate potential market reversals. For example, an excessively high put-call ratio may signal that investors are overly pessimistic and the market might be due for a bounce, while an extremely low put-call ratio might suggest complacency or excessive optimism, indicating a potential market downturn.
Risk Management
Traders use the put-call ratio as part of their risk management strategy. By monitoring changes in the put-call ratio, traders can assess whether the market sentiment is aligning with their own outlook and adjust their positions accordingly. For instance, if the put-call ratio starts rising sharply, a trader who is long on the market might consider hedging their positions or taking profits to protect against a potential downturn.
Market direction
Changes in the put-call ratio can provide insight into the potential direction of the market. For example, if the put-call ratio has been steadily declining over time, it may indicate increasing bullish sentiment and suggest that the market is likely to continue rising.

How is put-call ratio Calculated on the EdgeFinder?

Put-call ratio calculation

It's calculated by dividing the total number of outstanding put options by the total number of outstanding call options.
Frequently Asked Questions (FAQs)
View more FAQs here.

What time frames can you use the edgeFinder on?

The EdgeFinder gives directional bias and is not time based. Therefore, there is not a specific time frame that is best for the EdgeFinder.

What assets are included on the EdgeFinder?

Forex Majors:
AUDUSD, NZDUSD, USDZAR, GBPUSD, USDJPY, USDCAD, USDCHF, EURUSD

Forex Minors:
AUDCAD, AUDCHF, AUDJPY, AUDNZD, CADCHF, CADJPY, CHFJPY, EURAUD, EURCAD, EURCHF, EURGBP, EURJPY, EURNZD, GBPAUD, GBPCAD, GBPCHF, GBPJPY, GBPNZD, NZDCAD, NZDCHF, NZDJPY

Metals:
XAUUSD, PLATINUM, SILVER, COPPER

Energy:
USOIL

Indices:
GER30, US30, SPX500, US10Y, NAS100, JP225, UK100, RUSSELL

Bonds:
US10Y

Is the EdgeFinder realtime?

While the EdgeFinder is not necessarily realtime, it is fully automatic in its data collection. The EdgeFinder uses a variety of data sources and inputs. Most price data updates are on a 15 minute timer, while economic data updates every few hours. COT data updates weekly (as it only releases 1 time per week), and retail sentiment updates every 30 minutes.

Video Tutorials

How To Use The Put-Call Ratio
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