Put/Call Ratio = Put Volume / Call Volume
The Put/Call Ratio can be calculated for individual securities or a large number of stocks or indexes or both. The Chicago Board Options Exchange (CBOE) has three popular Put/Call Ratios, the $CPCE is the Equity Put/Call Ratio, the $CPCI is the Index Put/Call Ratio and the $CPC is the Total Put/Call Ratio. The Total Put/Call Ratio often moves above and below the 1.0 horizontal line. Depending on market conditions the range of the Put/Call Ratio can change over time.
Investors are buying more puts to hedge against market weakness or bet on a decline. Calls are purchased to bet on market advance. When investors are extremely bullish the Put/Call Ratio reaches low levels and when they are extremely bearish it reaches high levels.
In this sense the Put/Call Ratio can be used as a sentiment indicator. It also can be used as a contrarian indicator. Extreme low levels on the Put/Call Ratio could be a sign of possible market decline and extreme high levels of Put/Call Ratio could be a sign of possible bullish reversal.
Currently $CPC, the Total Put/Call Ratio is on low level if we compare it to other lowest levels this year. This could be the sign of a short term bearish reversal.
See the chart below with the 10-day and 200-day SMA and with $SPX in the background. There is also a 1.0 horizontal line. The Correlation Coefficient shows that for the most part the correlation between $CPC and the S&P 500 is negative.