Put/Call Ratio Shows Bullish Sentiment Rebound

At the bottom of the "Liberation Day" Trump Tariff Crash, sentiment was very bearish with a lot of options traders favoring put options versus calls.  That sent the 5-day simple moving average of the daily Put/Call Volume Ratio to its highest reading since August 2024, which was when a rate hike by the Bank of Japan scared everyone by disrupting the "yen carry trade". 

Prices have rebounded nicely since the April 8, 2025 low, and with that price rebound there has also been a rebound in trader sentiment.  This same 5MA of the Put/Call Ratio has fallen back down to the lower threshold in this week's chart, a place that pretty reliably marks at least short term price tops. 

Call options are a bullish bet on prices rising.  So when traders are feeling bullish, they want to trade more calls than puts, since a put is a bet on lower prices.  The late Martin Zweig was the first to point out this relationship in the 1970s, as he detailed in his book, "Winning On Wall Street". 

One problem with using the Put/Call Volume ratio, either the daily or some smoothed version, is that it only tells you about a "condition".  It is not a trading "signal".  And it will not tell you when that condition will matter.  The same is true for any sentiment survey or indicator, as well as for indicators that show you an overbought or oversold condition.  It is not something to act on directly; it is just background information. 

When prices rebounded out of that August 2024 low, this Put/Call 5MA also moved back down to a low reading much like what we are seeing now.  That low reading then did not mark a final end point for the rebound, but rather a pause point to allow the rebound to stop and catch its breath.  Other low readings within this chart's lookback period have had greater or lesser significance for prices, so as with lots of indications, your mileage may vary. 

If we go back further to the lows of October 2023 at the left end of the chart, we can see that this Put/Call 5MA spent a lot more time then at a very high level.  That conveyed a story about a much more entrenched state of bearish trader sentiment.  And it led to a much longer-lasting uptrend.  This current crash and rebound has unfolded much more quickly, and so it may fizzle out more quickly as well.