The Call / Put Ratio is one of the most well-known indicators of crowd sentiment. The indicator was developed by Martin Zweig, and its work is based on taking into account the real volumes of the CBOE options market. It is known that the Call option gives the owner the right to buy the underlying asset at a pre-fixed price. A Put option, on the other hand, gives you the right to sell it. Thus, an increase in the volume of Call options indicates that the demand for the product is beginning to increase. When the volume of Put options increases, the supply begins to exceed the demand. If we divide the volume of Call Options by the total trading volume, we get a ratio that shows the share of purchases from the total market share. It varies from 0 to 1 and is a high-frequency oscillator. The indicator as a calculation base allows you to use not only the volumes of the option markets, but also the levels of their open interest, which allows you to analyze the markets more deeply.

The indicator shows three zones:

  • Supply and demand are roughly equal (gray area);
  • Demand significantly exceeds supply (green area);
  • Supply significantly exceeds demand (red area).

Any market is characterized by a frequent change of conditions: after a rapid growth, there is a period of sales, and on the contrary, after a strong sale, there is an inexplicable period of growth. The Call Put Ratio identifies the change of these phases and tells you when to take a long or short position. Buy when the CallPut Ratio went into the green zone, provided that a few bars ago it was in the red zone. On the contrary, sell when the indicator has moved to the red zone from the green one. You can also follow the signal of the red signal line: buy when its decline is replaced by growth, and sell when its growth is replaced by a decline.

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For more information about this indicator, read John Summa’s book Trading Against the Crowd: Profiting from Fear and Greed in Stock, Futures and Options Markets.

Data on the ratio of option volumes are taken from one of the sections of the “daily bulletin” – the report of the CME exchange, published on a daily basis. This section is called the Daily Volume and is available as Excel files on the exchange’s official ftp server. To update the CallPut Ratio data, you just need to copy the corresponding reports to the indicator folder. For detailed instructions on how to perform the update, see the blog How to update CME reports on your PC. In the demo mode (during testing), the data will not be required, the indicator will load it from its internal memory. However, in demo access, updating reports is not possible, so the CallPut Ratio is displayed with some delay in this mode. The indicator works on any timeframe, but the data is only available for the daily timeframe, so the preferred working period is D1. However, the volumes for the current trading day are always available, which are updated several times per trading session.

Parameters:

  • Color Theme-choose one of the three color schemes of the indicator;
  • Type of CME Volume – one of the types of real CME volumes, including open interest;
  • Stundart Deviation – the standard deviation coefficient, when exceeding which the CallPut Ratio goes into the red or green zone;
  • Period of Signal Line – the period of averaging the moving average;
  • Auto Detect Report Name – true if the required reports are loaded automatically. Otherwise, the reports specified in the following two parameters will be loaded;
  • Call Option Name – the name of the Call option that you want to download;
  • Put Option Name – the name of the Put option that you want to load.
  • Update Frequency Min – the frequency of updating data from the file database. 0-the update is disabled, 1-the update occurs once per minute.


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