Put/Call Ratio

The put/call ratio (PCR) is calculated by dividing the number of put options traded by the number of call options traded over a specified time period — typically one trading session or a rolling average. A ratio above 1.0 means more puts than calls were traded (put-heavy); below 1.0 means more calls than puts (call-heavy).

For the broad market (using the CBOE Total Put/Call Ratio), the historical average is around 0.7 — meaning calls typically outnumber puts by approximately 40%, reflecting the long-only orientation of most equity portfolios and the prevalence of covered call writing strategies. Context-adjusted interpretation requires knowing the baseline: what is "high" PCR for one stock may be normal for another.

PCR as a Contrarian Indicator

At market extremes, the ratio is often used as a contrarian indicator. Extremely high readings (many more puts than calls traded) sometimes precede market recoveries — because once demand for puts is exhausted, the pressure behind it may abate. Similarly, extremely low readings (heavy call activity) sometimes precede corrections. This contrarian interpretation works best at sentiment extremes, not as a routine day-to-day reading.

PCR in Individual Stock Analysis

For specific tickers, an unusual PCR spike — significantly above the stock's 30-day average — is commonly read as hedging activity or put-heavy positioning ahead of a catalyst event. When a stock's PCR doubles before an earnings report or an FDA decision, it shows that options market participants are paying up for downside protection. TradeAI News does not compute put/call ratios and does not use them to prioritize events; this entry is educational.