The Put/Call Ratio (PCR) is an indicator that plots put volume divided by call volume. Put options give the owner the right to sell a certain amount of an underlying security at a fixed price within a specified time frame. They can be used if you expect a decline. Call options give the owner the right to buy a certain amount of an underlying security at a fixed price within a specified time frame. They can be used if you expect an advance. If the PCR value is higher than 1, this means put volume is higher than call volume.
If the PCR value is lower than 1, this means call volume is higher than put volume. Traders can use the indicator to determine market sentiment because it gives information about the overall expectations of a decline or an advance. Some traders apply a
moving average to smooth the data, to generate signals or to facilitate the discovery of trends. There are several ways to use PCR in a trading strategy and most traders use the indicator in combination with other analysis techniques.