Institution Trading Part 3

Option trading with the Put Call Ratio (PCR) involves analyzing the ratio of put options to call options to gauge market sentiment. PCR is calculated by dividing the number of put contracts by call contracts for a specific asset, typically on the same expiration date. A higher PCR suggests more investors are betting on a price decline (bearish sentiment), while a lower PCR indicates more call contracts (bullish sentiment).

When PCR is above 1, it often signals that puts are more actively traded, which might indicate fear or pessimism about the market. Conversely, a PCR below 1 suggests calls are more popular, implying optimism. Traders use this to anticipate potential market movements. For example, if PCR spikes significantly, it could signal a short-term downturn, prompting strategies like buying puts or shorting the asset.