Chart courtesy of decisionpoint.com

When put volume numbers becomes extreme (i.e. above 1) in relation to call volume, it is an indication of extreme bearishness in the market. Being a contrarian indicator this is usually bullish for the market. The indicator is inverted on the chart.

When call volume numbers becomes extreme (i.e. below 0.50) compared to put volume, it reflect extreme bullishness in the market. This is usually bearish for the market. When extreme numbers shows up, odds are good a larger top or bottom is forming.

The Put/Call Ratio is calculated by simply dividing the number of puts by the number of calls. The raw numbers can then be smoothed by using a moving average. A 10-day moving average is used here.










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