NIFTY Open Interest and PCR (Put-to-Call Ratio)

Nifty Open Interest, Change in Open Interest and PCR chart will be updated every 5 minutes




The above chart depicts the open interest (OI), change in open interest and put-to-call ratio (PCR) of Nifty options contracts. Nifty options open interest & change in open interest plotted as a bar chart shows the number of outstanding open contracts of the put options and call options. The PCR, depicted as a line chart, is the ratio of volume of open contracts of put options to the call options at each option strike.

Introduction

The put-to-call ratio (PCR) has been used as a barometer of overall market sentiment. A higher PCR (greater than 1) means more puts being bought than calls and therefore a bearish market sentiment & its time to sell stocks while a lower PCR (less than 1) means more calls are being bought than puts and therefore a bullish sentiment and its time to buy stocks. This is the simplest explanation. But things are not that simple as I will explain how the same PCR can also be used as a contrarian indicator of market sentiment.

In markets, the options are largely sold for a premium by pros and expert hands who understand the markets in-depth and more often than not, they are by and large the winners of the options market in the long-term because they have the ability to move the market in a manner that benefits the option selling the most. Let's call them 'Market Movers' (or option writers, put writers, call writers etc). When one thinks from the perspective of these market movers, the PCR ratio gets a different meaning. A higher PCR ratio (>1) means more puts are being sold by the market movers and therefore they resist the market from falling steeply (or rally the market upwards) to benefit the put options by eating away the premium. And a lower PCR ratio (<1) means more calls are being sold by the market movers and therefore they resist the market from going up steeply (or rally the market downwards) to benefit the call options by eating away the premium.

Usage of Nifty Open Interest and PCR in your Trading Strategy

We have plotted the Nifty Open Interest and PCR in the chart at each major strike price to give an idea at which strike price the major action happening in the market.

Nifty Open Interest and PCR

In the above image, the major action is happening at the strike price of 8800 where both puts and calls are trying to dominate though at this point calls are leading at this strike price. But the overall chart points that put writers are dominating the market (from strike price 7600 to 8700) and projecting a bullish market view.

A strong PCR value of 1.49 at 8700 indicates that put writers are ready to defend this level and provide immediate support to the market in case it falls. A trader can enter into a long position at this level in case of a market correction and benefit from a bullish move from here.

From the PCR value of 0.71 at 8800 we can infer that though call writers are leading at this point but are not formidable yet and therefore leaving open the possibility of Nifty breaching the 8800 level. But at strike price 8900 a PCR of 0.22 indicates a strong call writing and the call writers are more likely to provide a strong resistance to the market at this level. A trader can choose to enter a short position at this level in case of a market rally.

As a strict rule, one can enter a long position in Nifty if the PCR is 2.0 or more at the immediate lower strike price (in relation to nifty spot) and enter a short position in Nifty if the PCR is 0.5 or less at immediate upper strike price. Keep watching this chart every half-an-hour as the PCR values at each strike price keeps changing in response to the market moves and enter the trades accordingly.

As with anything related to trading be cautious while entering a trade and always keep a stop loss when you trade according to your risk profile (ideally 1% of your trading account).

There are different thought processes and investment philosophies when it comes to trading and investment. We have only provided only general guidelines on how to use this information in your trading strategy. Feel free to accept the above philosophy totally or partially or can be rejected totally.

Posted in Nifty, Options.

17 Comments

  1. is there some nse link to check live pcr for strike price at individual level, in option chain it is not possible

  2. Hi Raghunath,

    First of all thanks for ur great work and making our life simple.
    What I see observed is, today 10900 call side change in price is up / change in OI is up, so call long buildup happening, its fine
    But on put side change in price down and change in OI is up, so put side short build up happening.

    But in ur chart above, put side is showing price as up which gives indication of put long buildup
    Am I wrong or is there any thing can u look in to pls

    Regards
    Pradeep

    • The 10900 put price is more than call price mainly due to it being in-the-money. In the chart, change in the option price is not tracked so can’t say anything about price change.

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