Put Call Ratio (PCR) Master Guide: How to Spot Overbought and Oversold Reversals
A complete guide to calculating and trading with the Put Call Ratio (PCR) for NIFTY, Bank Nifty, and individual stock derivatives.
What is the Put-Call Ratio (PCR)?
The Put-Call Ratio (PCR) is a premier contrarian market sentiment indicator used to gauge whether the derivatives market is excessively bullish (overbought) or excessively bearish (oversold).
PCR is computed by dividing the total Put contracts by the total Call contracts across all active strikes:
$$\text{PCR (Open Interest)} = \frac{\text{Total Open Interest of all Put Options}}{\text{Total Open Interest of all Call Options}}$$
$$\text{PCR (Volume)} = \frac{\text{Total Traded Volume of Put Options}}{\text{Total Traded Volume of Call Options}}$$
Interpreting PCR Numerical Thresholds for NIFTY
Because option writers (smart money) write Put options when they are bullish and Call options when they are bearish, standard interpretation is as follows:
| PCR Range | Market Sentiment | Contrarian Action |
|---|---|---|
| > 1.50 – 1.80 | Extreme Bullish Greed | Overbought Alert: Call writing is exhausted; high risk of a sharp profit-booking pullback. |
| 1.10 – 1.40 | Healthy Bullish Trend | Bullish trend intact. Put writers are comfortably supporting higher market levels. |
| 0.80 – 1.10 | Neutral / Balanced | Sideways range-bound market; wait for directional breakout. |
| 0.50 – 0.70 | Moderate Bearish Trend | Bearish bias. Call writers dominate overhead strikes. |
| < 0.50 – 0.40 | Extreme Bearish Panic | Oversold Alert: Put writing has collapsed; market is primed for a violent short-covering bounce. |
How to Trade Contrarian PCR Reversals
- Spotting Oversold Reversal Bounces: When NIFTY falls for 3–4 consecutive sessions and PCR drops below 0.50, look for a 15-minute bullish reversal pattern (such as a Hammer or Double Bottom) near major support. Enter Call options with strict risk parameters.
- Spotting Overbought Exhaustion Tops: When NIFTY rallies into record highs and PCR exceeds 1.65, avoid buying deep out-of-the-money Call options. Prepare to hedge long portfolios using Bear Put spreads.