A put ratio backspread is so called because it seeks to profit from the volatility of the underlying stock, and combines short and long puts in a certain ratio at the discretion of the option investor. It is constructed to have unlimited potential profit with limited loss, or limited potential profit with the prospect of unlimited loss, depending on how it is structured. Please help improve this article by adding citations to reliable sources. Track the Put-Call ratio based on put options to call options traded volume as well as put options to call options open interest for each strike price of the security for a given maturity period.
It is simply the ratio of put options to call options and measures the percentage of open interest that option call put ratio 8 to 2 either puts or calls. Since puts are used to hedge against declines and calls are use to capture advances, this ratio can be a telling indicator. When the ratio rises above one, there are more puts than calls and the market is thought to be bearish.
When it falls below one, there are fewer puts than calls and the market is thought to be bullish. This number is commonly used as a market sentiment indicator when it reaches extremes. To calculate the ratio, simply divide the number of puts by the number of calls and express in decimal form. In order to get a better p.
Option call put ratio 8 to 2