Put-Call Ratio: Equity versus Index

There are three CBOE Put-Call Ratios available from the CBOE Equity Put/Call Ratio ($CPCE), the CBOE Index Put/Call Ratio ($CPCI) and the CBOE Total Put/Call Ratio ($CPC). First, a little background. The Put-Call Ratio equals put volume divided by call volume. Put options increase in value during a decline. Call options increase in value during an advance. The Put-Call Ratio is above 1 when put volume exceeds call volume and below 1 when call volume exceeds put volume. Analysts use the Put-Call Ratio as a sentiment indicator. Sentiment is considered excessively bullish when the Put-Call Ratio is relatively low and excessively bearish when the Put-Call Ratio is relatively high.

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Surprisingly, overall levels for the equity Put-Call Ratio and the index Put-Call Ratio are quite different. The CBOE Equity Put/Call Ratio ($CPCE) trades below 1 most of the time, while the CBOE Index Put/Call Ratio ($CPCI) trades above 1. This shows a bias in call volume for equity options and a bias in put volume for index options. Why is this? Index options are associated with professionals. While index options can be used for directional bets, they are also widely used for hedging. Institutions buy puts to hedge against their long positions. Equity options, on the other hand, are more associated with non-professionals, who typically have a bullish bias. Even though non-professionals make directional bets with options, there is also a considerable amount of covered call activity (volume) to generate income. Chartist can level the volume bias somewhat by using the CBOE Total Put/Call Ratio ($CPC).
Arthur Hill
About the author: , CMT, is a Senior Technical Analyst at He has written articles for numerous financial publications including Barrons and Stocks & Commodities magazine. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed technician. In addition to his CMT designation, Arthur holds an MBA from the Cass Business School at City University in London. Learn More
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