How to chart equity put/call ratio over time
Quick answer
The equity put/call ratio — put volume divided by call volume — is a contrarian sentiment indicator. Extreme high readings (above 1.0 on the 10-day SMA) typically coincide with market bottoms. Extreme low readings (below 0.5) coincide with market tops. Smooth the raw daily ratio with a 10-day or 21-day moving average to extract the signal from noise.
The put/call ratio as a sentiment indicator
The put/call ratio — daily put volume divided by call volume — is one of the oldest and most widely followed sentiment indicators in options markets. The idea is simple: when traders buy more puts than calls, they're pessimistic. When they buy more calls than puts, they're optimistic.
As a contrarian indicator, extreme readings often coincide with market turning points. Extreme put buying (high ratio) typically occurs near market bottoms — maximum fear. Extreme call buying (low ratio) typically occurs near market tops — maximum complacency.
Three ratios, three stories
Equity put/call ratio: Options on individual stocks. Dominated by retail and smaller institutional flow. More volatile day-to-day, more responsive to individual stock events.
Index put/call ratio: Options on the S&P 500 and other indices. Dominated by institutional hedging. Tends to be more stable and reflects broader market sentiment.
Total put/call ratio: Everything combined. The most commonly cited version, but also the noisiest.
Why smoothing matters
Raw daily put/call ratios are extremely noisy. A single large block trade can swing the ratio dramatically on any given day. To extract a usable signal, apply a moving average:
5-day SMA: Short-term sentiment. Good for swing trading signals.
10-day SMA: Medium-term. The most commonly used smoothing window.
21-day SMA: Monthly sentiment. Reveals larger regime shifts in sentiment.
Quadesto's derived column feature can compute these SMAs automatically from the raw daily ratio.
Historical extremes
For the equity put/call ratio (10-day SMA):
Below 0.5: Extreme bullishness. Historically corresponds to market topping zones.
0.5-0.8: Normal range.
Above 1.0: Extreme bearishness. Historically corresponds to market bottoming zones.
These thresholds aren't absolute — they shift over time as market structure evolves (the rise of zero-day options has affected ratios in recent years). Always compare to the recent range rather than fixed levels.
Building the chart in Quadesto
Source the daily put/call data from CBOE (free download) or via API. Upload to Quadesto, compute the 10-day SMA as a derived column, and chart both the raw ratio and the smoothed version as a time series. Add threshold lines at 0.5 and 1.0 for context.