Rate Of Return
Total AssetsA simple market sentiment indicator
The Put/Call Ratio is an important market sentiment indicator used by the Chicago Board Options Exchange (CBOE). It measures the ratio of trading volume or open interest between put options (Put) and call options (Call), reflecting investors' bearish or bullish sentiment toward the market and thus gauging market sentiment (fear vs. greed).
📈 Core Definition
Put/Call Ratio = Put trading volume (or open interest) / Call trading volume (or open interest). It reflects short-term trading sentiment—the higher the ratio, the more bearish the market.
This indicator is commonly used to observe short-term market optimism or pessimism toward stocks. When the ratio reaches extremely high levels, it indicates excessive market pessimism, suggesting a potential rebound, and vice versa.
🔻 Analytical Logic: Sentiment → Behavior → Liquidity → Market Positioning.
To determine whether the market is in a panic bottom, hesitation zone, optimistic uptrend, or bubble phase, one must not only look at price but also consider four key dimensions: options sentiment, volatility, capital flows, and macro liquidity.
📈 Case Study:
On April 10, 2025, the 10-day average Put/Call Ratio = 1.08, approaching the "panic threshold (1.1)."
This suggests a significant rise in market hedging demand, with investors favoring Put purchases (bearish protection). It typically indicates that the index has undergone a correction or the market is excessively fearful, possibly nearing a short-term bottom.
📈 How Does It Correlate with the S&P 500?
When the Put/Call Ratio surges (blue line spikes upward), it often coincides with a short-term bottom in the S&P 500 (red line).
When the ratio remains low (<0.8), it signals market optimism or even greed, often indicating a short-term peak or bubble risk.
This is a contrarian indicator—the more fearful the sentiment, the closer the opportunity; the more euphoric, the higher the risk.
📈 Indicator Validity: The Options Market as a Sentiment Window for Professional Capital
Heavy Put buying: Fear of market decline → Increased panic, often after a drop.
Heavy Call buying: FOMO-driven rally → Excessive greed, often after a rally.
Rapid spike in Ratio: Excessive fear, liquidity hedging → Potential rebound.
Sustained low Ratio: Extreme optimism → Short-term correction likely.
📈 Application Recommendations
Bottom-fishing on sentiment reversal: When the ratio >1.1 and starts declining, combine with VIX and volume to time rebounds.
Bubble identification: When the ratio <0.7 and stays low, watch for overheating.
Use with VIX: Put/Call >1.1 + VIX >25 → Extreme fear, high rebound probability.
Correlate with Treasury yields: Fear sentiment + rapid yield decline → Liquidity hedging signal.
⚠️ Specific analytical methods are summarized in the charts—for reference only, not investment advice.
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