[LIVE] Nifty Put Call Ratio for Trading Nifty Futures and Options

Trading in the market is always tricky if you don’t know the market direction. If somehow you come to know the real mood of big traders in the market. Then you too will want to open the same trade as these big guys are having. You can do this with the help of the nifty put call ratio.

The put-call ratio shows us how many put options are written against the call options. The formula for this is very simple, just add the total open interest of put and divide it by total open interest of calls. You can easily find this total call and put open interest from the Nifty Options chain. We have done the calculation part for you, so you just have to see the chart and get the nifty put call ratio value.

[LIVE] Nifty Put Call Ratio Chart:

How to use Nifty Put Call Ratio for trading:

If Nifty is rising and the Put-Call ratio is also rising. It means option writers are actively writing more put options than call options. This suggests the market is bullish, so we can write put options.
If Nifty is falling and the Put-Call ratio is rising. It means option writers are writing more put options than call options. This means nifty is around support and put writers are confident that market will not break down. We can write put options, as market sentiment is still bullish and recent fall is just a retracement.
If Nifty is falling and the Put-Call ratio is also falling. It means option writers are actively writing more calls options than put options. This suggests the market is bearish, so we can write call options.
If Nifty is rising and nifty Put Call ratio is falling. It means option writers are writing more call options than put options. This means nifty is around resistance and call writers are confident that market will not give a breakout. We can write call options, as market sentiment is still bearish and recent rise could be a retracement. You can also use free Nifty Trend Finder tool.

There are hundreds of theories around PCR (put-call ratio). But the one which we just saw above is the most reliable one. We saw the nifty and PCR with respect to option writers and not option buyers. Because in options trading the market is dominated by the option writers. However, in PCR we are not checking which strike price is seeing the most action. So these option writing could be at far away strikes making no sense to the current market level. You can check this using Nifty Options Change in OI chart.

We can also interpret the following, with further analysis:

If nifty is trading at support and PCR is rising. Then we can say that put option writing is more than the call option writing. So the nifty is bullish. But before writing put option check if the rise in OI of the put option is at strike near to support. If the strike price is far away then don’t take any trade.
If nifty if trading at support and PCR is falling. Then option writers are writing more calls than puts. It implies, lack of confidence on that support level. Most likely support will get broken, hence no trade to be taken here. If you are taking a trade on expiry week, then consider the max pain level as well.
If nifty is trading at resistance and PCR is falling. We can conclude that call option writing has outnumbered the put option writing. So the nifty may remain bearish. But before writing call option check if the rise in open interest of the call option is the strike price very close to resistance. If the strike is far away then no trade to be taken.
If nifty if trading at resistance and PCR is rising. Then option writers are aggressively writing more put option than calls. It shows, lack of confidence on that resistance. Probably the resistance will break, hence avoid taking a trade.

For options trading, you need to have the lowest brokerage trading account so that your breakeven is as low as 5 paise. You should know technical analysis as it is easy to learn and master. Using technical analysis you will easily find trading setups.

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