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1990issue C011-6

Open-interest put/call ratio as an intermediate sentiment overlay

A historical case study built a put/call ratio from outstanding index-option open interest, smoothed it with a 10-day moving average, and treated rare extreme-and-reversal readings as an intermediate overlay to weigh with other technical evidence.

  • A put/call ratio can be built from outstanding index-option open interest instead of from traded volume or dollar premium, so the reading tracks the stock of unclosed contracts.
  • A 10-day moving average of that open-interest ratio was used to mute short-horizon noise and support an intermediate-term reading of option-writer positioning.
  • Across a six-year window the 10-day average fell below 0.50 on only three occasions and exceeded 1.90 on only five, and a mechanical overlay treated a turn up from 0.50 or lower as buy-mode and a turn down from 1.90 or higher as sell-mode.
  • The case study stated that a signal does not specify the start date or size of any later move, and it presented the ratio as one input to weigh with other technical evidence.
Entries in this reading3 entries
Current trackPut-call ratio33 readingsOpen interest analysis118 readingsMoving average449 readings

Building the ratio from open interest

A put/call ratio can be built from outstanding index-option open interest instead of from traded volume or dollar premium. In this workflow the put/call ratio is a comparison of put contracts with call contracts, applied to outstanding positions rather than to traded volume or premium dollars.

Open interest is the stock of unclosed option contracts used as a positioning measure instead of a transaction-flow measure.

Smoothing for an intermediate reading

A 10-day moving average of that open-interest ratio was used to mute short-horizon noise and support an intermediate-term reading. The ten-day moving average is a fixed lookback smoother applied to the open-interest put/call series so day-to-day noise does not dominate the reading.

Option-writer positioning

The reading assumed option writers create more calls when they expect lower prices and more puts when they expect higher prices. Option-writer positioning is the inferred stance of sellers who create puts or calls, taken from which side of the market they choose to write.

Rare extremes and the mechanical overlay

A 10-day reading near a 2-to-1 imbalance in either direction was treated as rare and often appeared in option-expiration weeks. Across the six-year window discussed, the 10-day average fell below 0.50 on only three occasions. Across the same window, the 10-day average exceeded 1.90 on only five occasions.

A mechanical overlay treated a turn up from 0.50 or lower as buy-mode and a turn down from 1.90 or higher as sell-mode. That mechanical threshold is a predefined extreme-and-reversal rule that marks buy-mode or sell-mode on the smoothed ratio without stating how far prices may travel.

A dated sell-mode turn

The ratio reached 1.96 in late July 1989 and turned down from above 1.90 on 2 August 1989, which the case study marked as the first sell-mode reading in two years. The case study stated that a signal does not specify the start date or size of any later move, and that two or three similar extremes can appear as much as six months apart.

Weighing the overlay with other evidence

The ratio was presented as one input to weigh with other technical evidence, not as a standalone decision rule.

Rare 10-day OEX put/call open-interest extremes, 1983–1989

These are the infrequent intermediate sentiment prints a trader is meant to weigh with other evidence, not a daily timing tape. Every extreme the authors flagged sits outside the 0.50–1.90 band used for mechanical turns, including the late-July 1989 reading of 1.96 that put the overlay in sell mode. The values are the exact readings stated in the article, not a tracing of the scanned figures.
These are the infrequent intermediate sentiment prints a trader is meant to weigh with other evidence, not a daily timing tape. Every extreme the authors flagged sits outside the 0.50–1.90 band used for mechanical turns, including the late-July 1989 reading of 1.96 that put the overlay in sell mode. The values are the exact readings stated in the article, not a tracing of the scanned figures.OEX (S&P 100) index options · 10-day moving average · 1983-06-01T00:00:00.000Z to 1989-07-31T00:00:00.000Z

Ratio is outstanding OEX put open interest divided by call open interest, then a 10-day moving average. Buy when that average turns up from 0.50 or less; sell when it turns down from 1.90 or more. February 1984 printed both a 0.42 low and a one-day 1.92 high; the article does not give their order inside the month.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
2 of 31 in the Put-call ratio track
19901-9 pp.Next on Put-call ratioActivity-weighted call-put ratio for options regime contextA call-put-ratio is oriented so higher readings mark heavier call activity and, under a contrary reading, greater caution, while lower readings mark pessimism and lower caution.
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 year199092 readings
All 33 readings tagged Put-call ratio
Also on Put-call ratio5 readings
1991Constructing an activity-weighted call-put sentiment reading1992Construct 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