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1991issue C021

Constructing an activity-weighted call-put sentiment reading

A call-put-ratio compresses call and put volume into one crowd-sentiment reading. Day-to-day volume is too volatile to use raw, and volume cannot separate new positioning from unwind, so each side is scaled by end-of-session open-interest and then smoothed with an activity-weighted-average.

  • A call-put-ratio is call option volume divided by put option volume, with call-heavy activity treated as bullish expectation and put-heavy activity treated as bearish expectation.
  • Day-to-day readings of that volume ratio are treated as too volatile to use raw, so a ten-day-moving-average is the conventional smoother.
  • Volume alone cannot show new positioning versus liquidation, so a call-put-trin scales each side by end-of-session open-interest.
  • Averaging by summing each series first, then taking ratios of those totals, produces an activity-weighted-average in which busy sessions outweigh quiet ones.
Entries in this reading3 entries
Current trackPut-call ratio33 readingsOpen interest analysis118 readingsMoving average449 readings

Start with a call-put-ratio

The first compression is a call-put-ratio: call option volume divided by put option volume. That ratio is used as a crowd-sentiment reading. Call-heavy activity is treated as bullish expectation. Put-heavy activity is treated as bearish expectation.

Day-to-day readings of the volume ratio are treated as too volatile to use raw. A ten-day-moving-average is the conventional lookback used to damp those swings.

Volume cannot name new risk

Each option purchase has a matching writer. Volume by itself therefore does not show whether activity is new positioning or liquidation of existing contracts.

Open-interest is the number of option contracts still outstanding at the close of a session. Combining the volume ratio with that end-of-session open-interest produces the next object in the workflow.

Scale each side with open-interest

The next object is a call-put-trin: the call volume-to-open-interest ratio divided by the put volume-to-open-interest ratio. That is call volume over call open-interest, divided by put volume over put open-interest.

The sentiment gauge remains a ratio of call activity to put activity. Each side is now measured against the contracts still outstanding at the close.

Build an activity-weighted-average

When the call-put-trin is averaged, each series is summed first. Ratios are then taken of those totals. The result is an activity-weighted-average: high-activity sessions weigh more than quiet sessions.

How the construction reads extremes

In this construction, an extreme surplus of optimism is associated with market tops. An extreme surplus of pessimism is associated with market bottoms.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
6 of 31 in the Put-call ratio track
19911-5 pp.Next on Put-call ratioFund-index regime, put-call confirmation, then the tracking fundStart with the index-proxy: a stable-mandate diversified fund, or a basket of them, is read as the market regime before any single fund is sized.
All readings on this track · 31 readings
  1. 1989Constructing an open-interest-scaled put-call ratio
  2. 1990Open-interest put/call ratio as an intermediate sentiment overlay
  3. 1990Activity-weighted call-put ratio for options regime context
  4. 1990Stacking moving averages, put-call regimes, and double bottoms
  5. 1991Constructing put-call open-interest regime filters
  6. 1991Constructing an activity-weighted call-put sentiment reading
  7. 1991Fund-index regime, put-call confirmation, then the tracking fund
  8. 1992A seven-vote sentiment score for fund-sleeve regimes
  9. 1992Construct an activity-weighted call-put ratio before reading crowd conviction
  10. 1992Pair action with opinion in a composite sentiment index
  11. 1992Crowd extremes as a three-gate contrary procedure
  12. 1993Constructing a put-volume average regime filter
  13. 1993Neural-net inputs and rule trees for mechanical systems
  14. 1994Failed Treasury put-call signal and a dollar regime shift
  15. 1994Separate survey, put-call, and premium ledgers before a regime call
  16. 1994Repeated option-premium prints and a four-zone regime map
  17. 1995Consecutive-day regimes in the put-call premium ratio
  18. 1995Construct a put-call ratio for regime-aware contrarian signals
  19. 1996Treat one options idea as a regime-aware portfolio decision
  20. 1997Options open interest, put-call sentiment, and contrarian context
  21. 2000A two-layer put-call construction for intermediate market conditions
  22. 2002Sentiment confirmation for trend-following options
  23. 2003Construct a regime overlay from implied volatility and the put-call ratio
  24. 2004Dollar-weighted Put-call ratio construction
  25. 2006Debit put spreads inside put-call regimes
  26. 2011Put-call ratio cycle phases for index context
  27. 2011Constructing a put-call ratio cycle indicator
  28. 2011Building a put-call ratio indicator stack
  29. 2011Put-call ratio regime context with oscillator and band confirmation
  30. 2018Reading seasonal regimes with put-call divergence and bands
  31. 2020Treat close-only volume as a hypothesis, then choose regime or phase
By fieldOptions and volatility171 readingsBy year199198 readings
All 33 readings tagged Put-call ratio
Also on Put-call ratio5 readings
1990Open-interest put/call ratio as an intermediate sentiment overlay1992Construct an activity-weighted call-put ratio before reading crowd conviction1992Pair action with opinion in a composite sentiment index1989Constructing an open-interest-scaled put-call ratio1991Constructing put-call open-interest regime filters