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Dealer Flow
The Put/Call Ratio, Explained
One of the oldest sentiment gauges in the market. Useful at the extremes, noise everywhere in between.
NoVo Options Trading · 2026
The put/call ratio divides the volume of puts traded by the volume of calls over a period. More puts than calls (ratio above 1) suggests traders are buying downside protection or betting bearish; more calls (ratio below 1) suggests bullishness or speculation. It is a crude thermometer for market sentiment.
Why extremes are contrarian
The counterintuitive part: extreme readings often mark turning points, not continuations. When the ratio spikes very high - everyone piling into puts - fear may be peaking, and washed-out markets tend to bounce. When it drops very low - everyone chasing calls - complacency is high and the tape is vulnerable. Extremes read as contrarian; the middle is just noise.
Which ratio you're looking at
There are several: equity-only, index-only, and total. Index puts are often bought as portfolio hedges, not directional bets, so an index-heavy ratio can look bearish when it is really just insurance. Knowing the source matters before you draw a conclusion.
The put/call ratio is a crowd mood ring - loudest exactly when the crowd is most wrong.
How to actually use it
Treat it as context, not a trigger - one input alongside the VIX, dealer positioning, and structure. A sentiment extreme tells you the crowd is leaning hard one way; it does not tell you when the tape will turn. Pair it with a real level and a catalyst before it means anything actionable.
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NoVo is a software tool for market analysis and for executing trades you initiate, not financial advice. This article is general education, not investment advice. Options trading involves substantial risk of loss, up to and including your entire capital. NoVo makes no guarantee of profit, win rate, or performance, and past results do not predict future outcomes. You are responsible for your own broker account, configuration, and trading decisions.