What is PCR in Option Chain?

For option trade, you might have used option chain, but what does option chain indicate? Yes, there are the details of strike prices, premium, Open Interest, Volume, etc, but do you know what is PCR in the option chain?

Well, in simple terms, PCR is Put Call Ratio that helps in determining the possible direction and market trend. 

In this article, let’s have a detailed understanding of what PCR in an option is and how to analyze options using Put-Call Ratio data.

PCR Option Chain Analysis

First, let’s understand where to find the PCR data in the option chain. In general, PCR data is calculated using Open Interest, but it can be calculated using Volume data as well.

The value of PCR helps in determining the potential market trend and its trend which helps a trader in taking the right position and also in determining the potential reversals. Both the volume of options trading and the number of options contracts i.e. open interest for a particular day or period can be taken into account when calculating the PCR. 

But to use this ratio efficiently it is important to understand how to calculate and what its value indicates.

How to Calculate OI PCR?

In the option chain along with the individual open interest value corresponding to each strike price, there are the total OI contracts details (highlighted in blue in the option chain above) for both the put and call option. 

Now dividing the value of Put option OI with Call Option OI data helps in determining the potential trend. 

PCR (OI) = Put open interest of a day/Call open interest of the same day

If, 

• PCR>1= This signifies the put sellers are more aggressive in the market than the call option seller
• PCR<1= This signifies the aggressiveness of call option sellers than put option sellers. 

Now similar to this, one can determine PCR value using Volume data as well.

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How to Calculate Volume PCR?

PCR can be determined by dividing the volume of put and call trades made on a particular day. The total volume data is highlighted in red in the option chain below. 

PCR (Volume) = Volume of put option/ Volume of a call option

• If Volume PCR >1: This means that put volume is more than call volume which indicates a bearish market. 
• If Volume PCR < 1: This indicates the bullish market as put option volume is lesser than call option volume. 

– The blue line indicates the Put call ratio of NIFTY 50 and the red value is the spot value.

The graph given above is NIFTY 50 and its PCR graph. The X-axis represents the time period, and the Y-axis shows the put-call ratio along with the change in price. 

As you can see that as the blue line in the graph goes down, i.e. PCR value goes below 1, the market goes bearish and vice versa. 

Let’s see how PCR can be useful for options traders.

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Importance of PCR Option Chain Analysis

Analyzing the PCR value helps in determining the market trend and in predicting market reversals. It is one of the important indicators in option trading and helps in: 

1. Finding the Current Market Sentiment: PCR is a useful tool for figuring out the current market sentiment at any given time.
2. Price Movement Direction: PCR enables traders to make well-informed directional bets by assisting them in determining the direction of price movement in underlying securities.
3. Indicating the Contrary: The PCR is a contrarian indicator, allowing traders to avoid following the herd mentality when making investment decisions in a particular market.
4. Trading Behaviour Analysis: The put-call ratio aids in examining the general trading style of market participants.

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Conclusion

The Put call ratio is a useful indicator for your future market predictions. You can calculate it easily through the options chain and can use it to know the market direction and to increase the chance to earn profit in option trading. To get better results you can use it with other types of technical indicators, and before making any such decisions, you should always rely on 3 confirmation signals.

If you are willing to learn options trading in detail, we suggest you enroll in our stock market courses, where we give you live examples and our experts with years of experience can help you with the technical analysis along with psychological tips.

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