The CBOE Put-Call Ratio is a sentiment indicator that compares the volume of put options to call options traded on the Chicago Board Options Exchange. A ratio above 1 suggests bearish sentiment (more puts being bought), while below 1 suggests bullish sentiment, and extreme readings can signal potential market reversals. Contrarian traders pay close attention to this indicator, as historically elevated put-call ratios have often preceded market bottoms.
Example
“The put-call ratio surged to 1.3, a level that contrarian traders interpreted as a sign that fear was peaking and a bounce was imminent.”