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Put-Call Ratio for Individual Stocks

Updated on 2010-02-09





Options exchanges are places where traders and investors can buy and sell options contracts. An option can be either a call or a put.


Definition
A call option gives the buyer the right, but not the obligation, to buy the underlying security at a specific price on or before the option expiration date. A put option gives the buyer the right to sell the underlying security. Call options are generally bought by traders expecting an increase in the price of the underlying asset, while traders buying put options expect the price of the underlying asset to decrease.


Put call ratio
Put and call volume data (The number of traded put and call contracts), is used by many stock, futures and currency traders, who trade the underlying security, in their investment process and trading decisions. One of the most popular tool or indicator that is directly derived from the options market is called the Put-Call Ratio. The put-call ratio is used as a market sentiment indicator. It helps traders gauge the overall mood of the market. The put-call ratio is calculated by dividing the put volume or the number of traded put contracts by the call volume.


Put call ratio for individual stocks
Put-call ratios calculated by one of the most popular options exchange, the Chicago Board Options Exchange, can be downloaded using Equity Put-Call Ratio. This ratio is available for many indices, but did you know that it can also be calculated for individual stocks?
The result is an indicator that measures the investors' sentiment regarding a particular stock. The Chicago Board Options Exchange offers monthly put and call volume data for all stocks listed on U.S. markets. This data is downloaded by Monthly individual stocks put and call volume and can be used to create individual put-call ratios.

The OCC or the Options Clearing Corporation, which is the largest equity derivatives clearing organization in the world, allows investor to download daily put and call volume data for U.S. stocks. Unlike the Chicago Board Options Exchange data, this data is available daily for all exchanges and it is available separately for three market participants: Customers, Firms and Market Makers.

The Individual Stocks Put and Call Volume item retrieves historical put call data from the OCC website. It creates no symbols; it inserts the data in a separate database. You can easily access this data with a single function and creates several types of put-call ratios.
Here is an example that displays a chart of a market-makers put-call ratio for YHOO (YHOO is the symbol of Yahoo):
pcratio = GetData("putcall_volume","put_market_maker",LastData) / GetData("putcall_volume","call_market_maker",LastData);
plot(pcratio, "pcratio_market_makers", colorRed,ChartLine,StyleOwnScale);

The main drawback of the put call ratio for both indexes and individual stocks is that the volume data does not take into consideration whether the options contracts are being bought or written. If the CBOE exchange reports that there were 500 call contracts traded for Yahoo, we do not really know how many contracts, among these 500, were bought and how many were written (to write an option is to short an option). Traders buy call options if they have a bullish sentiment and write call options if they have a bearish sentiment. Therefore, we cannot conclude whether a higher call volume is bearish or bullish. However, we still can perform analysis and backtesting and find interesting and profitable strategies.


How-to articles about options Put/Call:

How to create trading rules based on Put and Call volume data: A screen that scans all U.S. stocks looking for the ones that have a put call ratio above 2.

How to plot put/call ratio of individual stocks: This article shows you how to plot historical put call ratio data for a specific stock.


Related Trading Items:

Put-Call Ratio Index using Market Makers Trades: This is another method of calculating the put call ratio that consists of using options volume from market makers instead of the volume of all market participants.

Put minus Call Options Volume - Market Indicator: Market indicator that measures the daily difference between put volume and call volume of all US stocks.

Put minus Call Options Volume - Market Indicator: This is another market indicator that calculates the ratio of stocks with more put volume than call volume (in a given day) to the stocks that generated more call volume than put volume.












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