Chapter 29: Introduction to Index Option Products and Futures 521 
Example: The morning paper shows that yesterday the trading activity for OEX 
options was: 
Total OEX Call Volume: 125,000 Contracts 
Total OEX Put Volume: 135,000 Contracts 
Therefore, the ratio is: 
. 135 000 Index Put-Call Ratio= ' = 1.08 for yesterday 
125,000 
This technical indicator is a contrary one. The contrarian thinking is along these lines: 
if everyone is buying puts, then everyone must be bearish; if everyone is doing some­
thing, they can't all be right; therefore the contrarian must assume a bullish stance. 
So, if the put-call ratio is high, too many traders are buying puts; a contrarian 
would interpret that as a bullish sign. Conversely, if the put-call ratio is low, too many 
traders are buying calls; the contrarian would consider that as a bearish indicator. The 
theory behind contrary systems is that the majority of traders are wrong at major 
turning points in the market. 
There are several typical put-call ratios that can be computed. Generally, one 
would not want to mix different types of options. For example, the equity put-call 
ratio uses the option trading volume of equity options only. The index put-call ratio 
uses index options only. Each futures contract put-call ratio is generally computed 
separately, gold, soybeans, currencies, etc. One might also attempt to screen his input 
a little further: for example, the index put-call ratio should only include index options 
on U.S. exchanges; the others can be computed separately. 
Obviously, the more highly traded option contracts produce a more reliable put­
call ratio: equity options and index options being very liquid. Gold futures options by 
themselves are not that active and may produce distorted results for a period of time. 
The Ratio Itself. Traders and investors almost always buy more calls than 
puts where stock options are concerned. Therefore, the equity put-call ratio is 
normally a number far less than 1.00. If call buying is rampant, the equity put­
call ratio may dip into the 0.30 range on a daily basis. Very bearish days may 
occasionally produce numbers of 1.00 or higher. An average day will generally 
produce a ratio of around 0.50. 
Index options, however, produce much larger ratios. Many institutional and 
other investors are constantly looking to avail themselves of the protective capability 
of index puts. Therefore, far more index puts are purchased than are equity puts. An 
average day might produce readings of 2.00 for some indices.