Most investors are aware of stock markets and the the importance of fundamentals and technical analysis while making decisions in regards to their investments. They are also familiar with the concept of put and call options; these are special options available when trading stocks or other financial instruments. Put and call options are essentially contracts that give the option buyer the ability to buy or sell the underlying asset at a predetermined price.
However, investors may not be aware of the concept of Put-Call Ratio which is known as a sentiment indicator and is used for gauging the overall sentiment of the stock market.
Put-Call Ratio is calculated by dividing the total number of puts traded on a given security by the total number of calls traded on that security. When that ratio is higher than 1, it has usually been taken as an indication of investors being bearish about the direction of a stock. If the ratio is lower than 1, then it is usually taken as an indication of the investors being bullish about the security.
One popular way to make use of Put-Call Ratio is to use it on Wednesdays. It is said that Wednesdays have the highest volume of trading in stocks and this is because the investors try to anticipate the direction of the stock markets for the remainder of the week. The higher the Put-Call Ratio is on a Wednesday, the more bearish the outlook for the stock market is for that week, and vice versa.
To make the most out of Weird Wednesdays for Put-Call Ratios, investors should try to observe the overall Put-Call Ratio across the most actively traded stocks. Once an investor finds an overall bearish sentiment in the stock market, they should act accordingly and protect their investments or make profits off of the bearishness.
Overall, Put-Call Ratios are a great way to gauge the sentiment of the stock market and traders can make effective use of it by monitoring them on Wednesdays. Even though it is not a fool-proof indicator, investors can stand to benefit greatly from monitoring Put-Call Ratios on Wednesdays as this can help them make more informed decisions about their investments.
