Put call ratio explained simply and understandably. // Put-call p/c indicator formula example analysis definition pc trading Chart predication parity Meaning Best Settings Youtube CCI vs RSI stochastic MACD stock forex video pdf beginners day secrets video chart patterns settings john swing daily rsi stochastics macd technical scalping basics how to use simple david moadel
welcome to looking at the markets with David Modell today I wanted to give a
brief introduction to the put/call ratio so here we go for people who like to
trade popular ETFs that represent the overall US stock market such as SP yv TI
and SCH B they might be looking for a good contrarian sentiment indicator this
means an indicator that tells you when too many traders are selling so you can
buy and when too many traders are buying so you can sell or short sell
some people would claim that most traders are wrong most of the time and
that most traders tend to buy call options as a bullish bet near the top of
the market and that they tend to buy put options for protection or as a bearish
bet near the bottom of the market so it might make sense for a contrarian to
want to gauge market sentiment by finding out whether traders are mostly
buying puts or calls so they can do the opposite
thus we have the put/call ratio it is simply the put volume divided by the
call volume if the put call ratio is equal to 1 then there is a balance
between the number of puts being traded and the number of calls being traded
if the put call ratio is less than 1 then the number of calls being traded is
greater than the number of puts being traded and if the put call ratio is
greater than 1 then the number of puts being traded is greater than the number
of calls being traded the chart on the next slide will show you that
occasionally the options markets which can be used to gauge investor sentiment
can reach levels of extreme bullishness such as when the put call ratio gets
closer to point 50 or of extreme bearishness such as when the put call
ratio gets closer to 1 point 50 contrarians might choose to buy when
there is extreme market bearishness and sell when there or short when there is
extreme market bullishness so let's take a look at this in action this is from
stockcharts.com wanted to give them credit and the ticker symbol on
stockcharts.com for the put call ratio that I use is CPC
and that is the options total put/call ratio index that's the one that I choose
to use all right and I chose to use a line chart here this is the weekly chart
and it goes back several years as you can see all the way back to 2013 and as
we can see one is right here it's right about in the middle a little bit lower
than the middle one is when the puts and calls are in balance okay and so market
sentiment is kind of neutral you might say and as it gets higher and higher
that means that more and more people are buying puts compared to calls and as it
gets toward 1.50 and occasionally even beyond that all right
but it's reached extreme levels here for sure and also here and you might say
here it's starting to get extreme okay and so you might choose to fade that
move meaning be a contrarian and decide to bet in the opposite direction so if
there is extreme bearishness here then you might actually go long spwhy or some
other market tracking index all right and there are instances here a number of
them when the market had extreme bullishness because people just weren't
buying nearly as many caught as many puts as they were buying calls like over
here for example and over here and over here all right
as the put/call ratio got closer to point 50 let's say it never really got
very close to point 50 but it started to approach it and that might be a time you
know if there is extreme bullishness you might want to sell your SP y position or
even possibly short the market although that is riskier
it can also be used on daily charts which is a shorter timeframe all right
and this is a line chart and it only goes back a couple of years and we can
see here in this would be August of 2015 and here again the middle here right
about in the middle is one where it's in balance with the puts in the calls being
traded but when the put call ratio got really low okay that this indicates
extreme bullishness in the market alright when it got pretty close to
point 50 here which does not happen very often as we can see on this chart here
and so that might be a good time to might have been a good time to sell a
position in the markets or even short it if you don't mind taking on that kind of
risk soon afterward it reached an extreme
level of wealth but the put/call ratio went not only up to one point one point
fifty but up above it and that means not too many I'm sorry
many puts were being traded a lot more puts than calls and so that would be
extreme bearishness and that might be a time to go long in the markets possibly
okay and we see that it reached an extreme level over here and over here so
it doesn't happen that often but it does happen and that's something to possibly
look for okay but here's something to be aware of
please be aware that this is not a perfect indicator and is not a perfect
predictor of market bottoms and tops it is simply another useful tool to add to
your repertoire as a trader or investor alright so if this video was useful or
helpful to you please give this video a thumbs up on YouTube leave comments and
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my financial educational videos and if you'd like to contact me my name is
David Modell and I can help you with putting together a trading or investing
plan understanding fundamentals or technical indicators stocks options
whatever it is you need you can contact me anytime by email at David Modell at
gmail.com thank you so much for watching and listening I really appreciate it and
I'll talk to you again soon
take care Tyger Tyger they're gonna take it off me Tyger Tyger they're gonna take
it off me tight tight