Construct a put-call ratio for regime-aware contrarian signals

Build a smoothed put-call series

A Put-call ratio series is constructed from daily put volume divided by call volume, then smoothed with a Moving average. Crowd positioning can then be read as a market-regime context rather than a single-day print.

The same construction is used as a Contrarian strategy. Unusually heavy call buying is treated as crowded optimism, and unusually heavy put buying is treated as crowded pessimism.

Split index hedges from equity speculation

Index-option and equity-option ratios must be built separately because hedging routinely lifts index put activity toward a typical daily reading near 1.00, while equity call volume is typically about twice put volume and a typical equity reading is near 0.50.

Equity-only volume is often viewed as a cleaner speculative input, while liquid index options mix speculative flow with institutional hedges against stock holdings. The two series are not interchangeable regime gauges.

Replace fixed extremes with turning points

Fixed combined-volume thresholds lost reliability after mid-1980s index-put hedging distorted the blended exchange totals. Those rules included buying when total puts exceeded 65 percent of total calls, or selling when they fell below 35 to 40 percent.

A preferred construction replaces those static bands with local maxima and minima on the moving-average path. A peak that turns down is treated as a buy point, and a trough that turns up is treated as a sell point.

One illustrated construction uses a 21-day Moving average of the equity-only ratio, with buy marks at peaks that turn down and sell marks at low readings that turn up.

Isolate equity-only volume

Equity-only volume can be approximated by subtracting listed index and related option volume from exchange totals. It can also be computed stock-by-stock from a dedicated database when a cleaner speculative series is required.

Apply the same reading with a purpose-specific limit

The same peak-and-trough reading was applied to a 21-day gold-futures options ratio. June-August 1994 readings near one put per call coincided with a later rebound from about 380 toward above 400, while mid-1995 readings near five calls per put were treated as unfinished bearish context.

The construction is described as less consistent on individual commodity-futures option books than on stock-market series because those option markets are thinner. It is framed as a purpose-specific context tool rather than a universal signal.