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Computerized Investing > Fourth Quarter 2010

The Put-Call Ratio

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by CI Staff

The Put-Call Ratio

Sentiment indicators have always been popular among traders, but as the market undergoes seemingly endless gyrations these days, more and more investors are looking at measures of sentiment to provide some insight into where the market may be headed next. One sentiment measure that garners a lot of attention is the put-call ratio: It is widely recognized as being one of the most reliable indicators of future market direction.

The put-call ratio is called a sentiment measure because it signals the possibility of market reversals by measuring the “feelings” of options traders. When options traders become too bullish, the likelihood of a market downturn increases, and vice versa.

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