Put/call open interest

The put/call ratio measured on standing open interest rather than on the day's volume.

Why we carry both

The volume ratio and the open-interest ratio are not two views of one number. Volume is a flow — what changed hands today. Open interest is a stock — what is still held. A stock decays information more slowly than a flow does, and the two therefore speak to different horizons.

Jena, Tiwari and Mitra (2019) put the volume ratio at its most efficient around two and a half days, and the open-interest ratio around twelve. Neither is a general-purpose sentiment gauge read at whatever horizon happens to be convenient.

Where we show the open-interest ratio, the horizon it speaks to is stated. That horizon is a property of the measure, not a lookback window for computing it — the two are separate settings and are labelled separately.

Deep in-the-money contracts are excluded

Raw put/call ratios are distorted by early exercise. When carry on the strike exceeds the remaining extrinsic value, holders of deep in-the-money puts exercise rather than hold, and the resulting volume carries no directional view at all.

Cboe documents the signature: an Amazon January 2023 $125 put traded roughly 99,000 contracts against 9,275 open, and next-day open interest barely moved. Volume far in excess of standing open interest, with no corresponding change in open interest, is exercise, not conviction.

Because exercises settle on a lag, the distortion clusters on Wednesdays. We exclude in-the-money contracts rather than publish a ratio with a day-of-week artefact in it.

Sources

Jena, Sangram Keshari, Aviral Kumar Tiwari, and Satish Kumar Mitra. "Put–Call Ratio Volume vs. Open Interest in Predicting Market Return: A Frequency Domain Rolling Causality Analysis." Economies 7, no. 1 (2019): 24. The horizon split — volume near two and a half days, open interest near twelve.

Cboe Global Markets. "How Early Exercise Order Flow Impacts Equity Option Put/Call Ratios." Cboe Insights. The Amazon example, the carry-versus-extrinsic exercise condition, the Wednesday settlement artefact, and the recommendation to exclude in-the-money contracts or restrict to customer volume.