Not sure where the market will head tomorrow? Tired of all those technical analysts? Do your technical analysis in seconds. Predict market sentiments yourself using PCR.
Put Call Ratio commonly called PCR is a simple ratio. This is calculated by dividing total number of put traded by the total number of calls traded on a particular day.
PCR = total number of puts / total number of calls
The average PCR is considered as 0.70. Some considers this as 0.50 but in practice, 0.70 yeilds more accurate results. You may wonder why this is not considered as 1. In any market sellers are always more than buyers. The same is true for stock market. The fund managers pollute the PCR ratio by hedging. Thus the number of calls are always higher than the number of puts. So put and calls are not always same. To adjust this criteria of market, the middle point is takes as 0.70.
You can use following table to check weather market will be weak or strong the next day.
If PCR near 0.70 or grater than 0.70, the market sentiment will be bearish.
If PCR is near 0.50 or less than 0.70, the market is getting strength (being bullish).
If PCR is less than 0.50, the market will be strong the next day (being bearish).
Success in playing options in the market is always dependent on your ability to understand the market sentimen ts. Though there are many factors affecting the market and no body can predict with 100% accuracy, PCR gives fairly good results.
Need more technical details, Read this article from Investopedia.