# Put and Call Options Explained

Generally, our portfolios include several assets such as EFTs, bonds, stocks, and mutual funds. Another asset class with lots of benefits that you can have in your portfolio is options. Options trading can be pretty overwhelming, especially for newbies, but if you understand specific key points, then it becomes easy.

Luckily, there are several indicators and measurements that can help us with options trading. And one of the most useful tools is the put-call ratio; with the right tools, you can understand whether to go for a put or call option.

Remember, when used correctly, options can be pretty beneficial. Therefore, before trading options, you need to understand what is the put call ratio. For more on put call volume ratio and what does put call ratio mean, let’s dive right into our put and call explained article.

## What is a put call ratio?

The PCR (put-call ratio) is a unique indicator that’s used to determine the options market’s moods. The put call ratio indicator thinkorswim focuses on options buildup and helps you understand if the recent fall or rise is excessive. It also shows you the right time to take a position.

Generally, if investors are purchasing more put options than calls, then it’s a bearish market. On the other hand, if they’re buying more call options than puts, then it suggests a bullish sentiment. This ratio is calculated on the basis of contracts on a given period or the options traded volumes.

Basically, you divide the Put options traded volume by the call traded volume for a particular duration. You can also get the ratio by dividing puts open interest by the calls open interest.

This figure can help you understand if the market is bullish or bearish. To understand how to read put call ratio, please continue reading our put and call explained article.

## How to read put-call ratio?

As aforementioned, the total put call ratio is the outcome of dividing the traded put by traded call options. If the ratio is 1, then the number of buyers for put options equals the number of call buyers. But the ratio of 1 isn’t an accurate place to start when measuring the market’s sentiments.

That’s because, in most cases, there are more traders buying call options than puts. Therefore, a great starting position can be 0.7 for equities. When the ratio is greater than 0.7, then it shows that investors are purchasing more put options than calls. This shows that bearish sentiment is building up.

Traders are hedging their stocks in anticipation of a sell-off, or they’re speculating that the given market is moving lower. A fall below 0.7 serves as a great bullish indicator, which means that traders are purchasing more call options than puts.

The ratio at both extremes shows that the market is overly bullish or bearish. This ratio will show how the traders view recent events. For more on put call options for dummies, please read on.

## Put-Call Ratio Explained for Beginners

Generally, our put call explained gives investors/traders a great idea of when to trade options based on the traded volumes. The put call ratio index considers the volumes being traded or the open positions for a certain period.

But traders tend to buy more call options than put, which gives us a ratio of less than 1 on most occasions. If the ratio is 1, then it’s a neutral market. But if the ratio is between 0.5 and 0.7, then it’s a bullish market. On the other hand, if it’s between 0.7 and 1, then you’re dealing with a bearish market.

To elaborate more on put call indicator, here is a put vs call option example. If the open interest for calls and puts at the S&P 500 for March 2022 with a strike price of 9000 has 99,800 contracts and 60,100 contracts. Then when you divide 60,100 by 99,800, then the PCR will be 0.6, which means a bullish market.

On the other hand, the trading volumes for calls and puts with a strike price of 10,000 for March 2023 have 90,800 and 99,400 contracts, respectively. Then when you divide 99,400 by 90,800, you will have a PC of 1.08 which suggests a bearish market.

With the above information, anyone can decide the direction of the bet for specific stocks. Therefore, you can use the PCR indicator to trade options. When the output is low, you can purchase the stocks and vice versa. This will help you understand the risk levels of specific securities.

Therefore: your Put vs call ratio strategy should include the open interest, trading volume, and strike price. These options detail can help any trader make the right calculations and determine the right strike price.

## Stocks With High Put-Call Ratio to Watch

When the put-call ratio is high, which means over 0.7, this shows that shows you’re dealing with a bearish market. Basically, the investors are favoring puts over call options which creates an excellent opportunity for the trader who prefers put options.

Luckily, with put to call ratio today or put call ratio live, you can always know the market’s sentiments before trading. If you have read the put call ratio explained then it’s time we show you some stocks with high put call ratio include:

• Apple: the PCR of Apple contracts reached 1.2 in January for every single call. This was the highest in 4 years, which encourages the bulls.
• INFRATEL: the PCR of tech companies is relatively high, and this includes INFRATEL. This firm offers reliable, secure, and high-performing cloud services. The PCR for this firm has been ranging between 0.9 and 1 for a few months and is an excellent option for investors.
• AMC Entertainment Holdings: the PCR of the AMC is 1.55, which is relatively high, making it the best option for put option traders. Other companies include Tesla INC (0.85), Nikola Corp (2.08), and Nvidia Corp.

## What is a good put call ratio for trading?

Now that you know where to find put call ratio for a stock, we need to know a great put-call ratio for trading. Generally, the best average put to call ratios for equities is 0.7. If the PCR is over 0.7, then the traders are purchasing more put options than calls.

This average gives you the right starting point since a ratio of 1 is quite rare. But some stocks have exceeded a thinkorswim put call ratio of 1.

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