Why should a trader bother about PCR

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PRICE	OPEN INTEREST	INTERPRETATION
Increase in Price	Increase in OI	Indication of new money coming and indicates the further continuance of uptrend
Increase in Price	Decrease in OI	The increase in price is due to short covering of positions
Decrease in Price	Increase in OI	The decrease in price is due to newly built short positions and further weakness is predicted
Decrease in Price	Decrease in OI	Traders unwinding their long positions by selling existing contracts

Option Chain Nifty – Interpretation of Open Interest:

How to interpret “Nifty Option Chain: Open Interest | Put Call Ratio Tracker”?

In Summary: High PCR means the market is bullish because the option writers are inclined to write puts. Low PCR means bearish sentiment – because option writers are not willing to write puts but instead write calls.

The put-call ratio (PCR) is a popular tool specifically designed to gauge the overall sentiment (mood) of the market. The ratio is calculated by dividing the number of traded put options by the number of traded call options. As this ratio increases, it can be interpreted to mean that the investors are putting their money into put options rather than call options. An increase in traded put options signals that investors are either starting to speculate that the market will move lower, or starting to hedge their portfolios in case of a sell-off.

Why should a trader bother about PCR and Nifty Open Interest?

The put-call ratio (PCR) is primarily used by traders as a contrarian indicator when the values reach relatively extreme levels. This means that many traders will consider a large ratio a sign of a buying opportunity because they believe that the market holds an unjustified bearish sentiment and it will adjust to normal soon, once the short covering begins.

Unfortunately, there is no magic number that indicates that the market has created a bottom or a top, but generally, traders will anticipate this by looking for spikes in the ratio or when the ratio reaches levels that are outside of the normal trading range.

An increasing ratio is a clear indication that investors are starting to move toward instruments that gain when prices decline rather than when they rise. Since the number of call options is found in the denominator of the ratio, a reduction in the number of traded calls will result in an increase in the value of the ratio. This is significant because the market is indicating that it is starting to dampen its bullish outlook.

Regarding Nifty Open Interest, it provides good support and resistance levels for the series. Traders usually look for Nifty Open interest highest OI strikes. These strikes are important to determine support and resistance

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