Nifty Open Interest Live Chart: Nifty Option Chain

In Summary: High PCR means the market is bullish because the option writers are inclined to write puts. Low PCR means bearish sentiment – because option writers are not willing to write puts but instead write calls.

The put-call ratio (PCR) is a popular tool specifically designed to gauge the overall sentiment (mood) of the market. The ratio is calculated by dividing the number of traded put options by the number of traded call options. As this ratio increases, it can be interpreted to mean that the investors are putting their money into put options rather than call options. An increase in traded put options signals that investors are either starting to speculate that the market will move lower, or starting to hedge their portfolios in case of a sell-off.

Why should a trader bother about PCR and Nifty Open Interest?

The put-call ratio (PCR) is primarily used by traders as a contrarian indicator when the values reach relatively extreme levels. This means that many traders will consider a large ratio a sign of a buying opportunity because they believe that the market holds an unjustified bearish sentiment and it will adjustto normal soon, once the short covering begins.

Unfortunately, there is no magic number that indicates that the market has created a bottom or a top, but generally traders will anticipate this by looking for spikes in the ratio or for when the ratio reaches levels that are outside of the normal trading range.

An increasing ratio is a clear indication that investors are starting to move toward instruments that gain when prices decline rather than when they rise. Since the number of call options is found in the denominator of the ratio, a reduction in the number of traded calls will result in an increase in the value of the ratio. This is significant because the market is indicating that it is starting to dampen its bullish outlook.

Regarding Nifty Open Interest, it provides good support and resistance levels for the series. Traders usually look for Nifty Open interest highest OI strikes. These strikes are important to determine support and resistance.

Why Option Writers?

Because Option Writers are generally market players with deeper pockets compared to option buyers.