How To Read Open Interest, Put Call Ratio, And Volatility

1 Apr 2008

Open Interest is an important indicator that can help one in ascertaining the flow of funds.

If the open interest rises with rise in price it is a bullish indication.
If open interest rises and prices fall it is a bearish indication.
If open interest falls and prices rise it is a sign of short covering by bears.
If open interest falls and prices also fall it is a sign of profit booking by bulls or liquidation of positions.

Put Call Ratio is an important indicator that can help one in gauging the future direction of the market.

If the Put call ratio rises then there is hope of higher prices in the near future.
If the Put call ratio falls it is a sign of weakness in the market.
Generally put call ratio is read along with volatility.
PCR can be calculated for Open Interest/positions or no of puts and calls traded.
Historically – 1.06 -2.00 is bullish. Above 2 and below 1.06 one may expect a sharp fall.

There are two types of Volatility – historic volatility and implied volatility. Historic volatility is based on historic prices of the futures and implied volatility is based on the volatility calculated from options i.e. volatility implied by premiums in options.

If volatility rises and PCR falls, it has bearish implications.
If volatility falls and PCR rises, it has bullish implications.

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Tags: Investing

39 Responses to How To Read Open Interest, Put Call Ratio, And Volatility

DR.NITIN.BHUJBAL.

March 25th, 2009 at 09:36

GOOD WORK MAHESH SHORT AND SWEET EXPLAINATION OF BASIC THINGS IN MARKET ,I M INTRESTED IN READING MORE ON PCR, VOLATILITY & RELATION OF OI TO VOLUMES ,IF ANY LINK OR BOOKS FOR THE SAME PLEASE MAIL ME. THANKS.

Mahesh Mohan

March 25th, 2009 at 09:42

I’ve forwarded a power point presentation to your email. Please have a look.

Thanks!

gerald A

May 8th, 2009 at 12:30

a good article mr mahesh but how do you calculate the open interest put call ratio.

I hope you will clarify the same with an example thanks

my email address is gerald18@rediffmail.com

lok

May 30th, 2009 at 20:31

i too would like to have the ppt presentation on PCR. Kindly send it across. many thanks.

my email is loke12k@gmail.com

angsuman bhattacharya

June 13th, 2009 at 21:22

i want to now about open interest and pricing relationship and how do i come to a point of decision to purchase or sell a stock. also i want to know the relationship betweel future and option. for example one told me that when large no. of put option is there in a stock the price should go up because of hedging. that means in the future markets the stock must be purchased. is it so? pl. show me the light if u can.

June 13th, 2009 at 21:27

Hey angsuman,

But I am not that good in F&O. I suggest you to ask your broker. That question can be answered only by someone who are active in F&O.

- Mahesh

Ravi

June 30th, 2009 at 15:41

Clean work dude….I also interested in same articles.
Appreciate if could send me.

God Bless

-Ravi

sudhir

July 8th, 2009 at 20:29

Very good explation of basic thing but for me it is very short.

Can you please send me the ppt for the same.

For that I am very thankful to you.

-sudhir

Wei Lin

August 15th, 2009 at 19:52

I liked your article very much. Could you email me the powerpoint on Open Interest, Put Call Ratio, And Volatility and related topics? Thanks.

August 15th, 2009 at 19:53

It’s on the way!

PatrickTiew

September 5th, 2009 at 06:06

appreciate much if u would spend a little time to email me too!! patricktiew@gmail.com good day!

bob

September 15th, 2009 at 02:03

Good article, would like to see the ppt as well

Nazreen M

September 16th, 2009 at 14:53

Hi Mahesh,

I am little confused between open interest based ratio and trade volume. If we consider the trade volume to conclude on the market sentiment, then we are considering a contract, where there is a trader taking an opposite position which nullifies the effect. As for open interest, when there is nobody to close down the position, wont that confirm the fact that the market sentiments are shared by most people equally?

Kindly mail me the ppt too..
Thanks in advance!

Brahmaiah

September 27th, 2009 at 01:14

sir, i am very much impressed by this article. please send ppt on pcr to my mail id . thank you si.

venkat

October 1st, 2009 at 21:03

sir your article is very good. please send me the ppt to my mail id.
thank you sir.

KaRtHiK

October 4th, 2009 at 00:47

I liked your article very much. Could you email me the powerpoint on Open Interest, Put Call Ratio, And Volatility and related topics?

By the way Mr. Mahesh How do u calculate PUT CALL RATION AND OPEN INTEREST

PLZ SEND ME THE PPT TO MY MAIL ID

Thanks

October 4th, 2009 at 00:49

Please check your email. It’s sent. Thanks!

naushad

October 9th, 2009 at 01:40

Its OUTSTANDING WORK DEAR. KEEP IT UP.
Could you send me PPT

October 9th, 2009 at 01:42

It’s done Naushad! Thanks!

Mahesh Balki

October 24th, 2009 at 18:55

Could u please send me more detials on PUT call buying and how to read the open interest call.

Thanks
mahesh

Shri

October 26th, 2009 at 23:09

Please send me the PP presentation link too

A Patel

October 27th, 2009 at 01:35

Great explanation. Thank you very much.

Could you please email me the presentation link too.

raman aggarwal

November 2nd, 2009 at 20:47

hi mahesh ji
very useful article for me. pls. tell me high pcr and low pcr. and send me ur great work on pcr ppt copy on my mail asap. thanks

sankar

November 15th, 2009 at 22:13

can u please send ppt to me also

November 15th, 2009 at 22:14

my mail id is complexno@yahoo.com. thank u in anticipation.

Robert Griebel

November 26th, 2009 at 19:20

Where can I get weekly historical spx index data as well as weekly spx options open interest and volume going all the way back to their start in the nineties? To make this task harder I want to find a source much cheaper than the CBOE!

December 15th, 2009 at 14:38

dear sir

kindly send me the power point presentation which you have sent others thanks

looking forward to receive it

gerald a

Pruthiv

December 29th, 2009 at 16:14

Nice work Mahesh …

if you have any other things for options or anything which can help us to define levels then please share with me.

Also invited to share the books name as well.

Thanks & regards
Pruthiv

Pratik Thakkae

December 30th, 2009 at 16:03

PLz send me some stuff on PCR,OI and Volatility.

Sanjay

March 10th, 2010 at 18:40

Sir,
Very good article. Can u pl. send me too the ppt. presentation on Open Interest.Also give any web site from where I can have more stuffs. Thanx.
Sanjay

rajesh

March 28th, 2010 at 13:42

wow! easiest way to teach yaar please send me too ppt

John

April 23rd, 2010 at 22:37

Hi, I also think it is a nice short exposition on how to understand the PCR. Would it be possible perhaps to also send me the PPT on PCR and volatility?

Thanks in Advance,
John