What is the put/call ratio?

The Put/Call Ratio is an indicator that reflects the put volume that occurs on a specific day relative to the call volume. Since options are used as a tool to mitigate risk, its important to see where there is more volume on a relative basis. The Put/Call Ratio rises above 1 when put volume exceeds call volume.

What does a falling put-call ratio mean?

A falling put-call ratio, or below 0.7 and approaching 0.5, is considered a bullish indicator. It means more calls are being bought versus puts. The put-call ratio can be an indicator of how the market views recent events or earnings. A ratio at either extreme suggests an overly bearish or overly bullish sentiment.

Is the CBOE put/call ratio a good gauge?

Since it includes index options, which are used by professional money managers to hedge portfolios of stocks, the total put/call ratio can distort the measurement of the temperature of our purely speculative crowd. Arguably, a better gauge is the Cboe's equity-only put/call ratio.