put-call ratio

The ratio of the total volume of equity and index put options to the total volume of equity and index call options. The put-call ratio is called a sentiment measure because it signals the possibility of market reversals by measuring the “feelings” of options traders. Options traders typically buy puts when they feel the market is going to decline, and they buy calls when they think the market is going to rise. The put-call ratio is a contrarian sentiment indicator, meaning that the market tends to move against the mood of the investors. When options traders become too bullish, the likelihood of a market downturn increases, and vice versa.