What does PCR tell about Bank Nifty expiry?

The put/call ratio is a very important tool used by a derivative trader to analyse the future price action of an underlying asset.

The put/call ratio is a very important tool used by a derivative trader to analyse the future price action of an underlying asset. A PCR of 1 indicates that the put open interest is equal to that of call open interest and the market is indecisive. When PCR turns below 1, i.e., when call open interest exceeds put open interest, we observe a selling pressure in the underlying. The inverse is true when PCR turns above 1, put open interest exceeds call open interest and the market is in an uptrend.  

However, when the PCR is near 0.5-0.6, one must be cautious as the underlying asset is in an oversold region and might look for a reversal. In case PCR is near 1.4-1.5, it tells that the stock is in the overbought region and a selling pressure can be observed. PCR, combined with price action & volume, is an ideal set-up one can wish to analyse the underlying assets.  

In the case of Bank Nifty, for the weekly expiry of December 9, the PCR stands at 0.84. This shows the selling pressure persisting in Bank Nifty, as call writing is more than put writing. The highest open interest on the call side stands at 37,000 while the highest open interest on the put side is at 36,000. It is expected that Bank Nifty will close somewhere in between these two points for the current expiry.  

For December monthly expiry, the PCR stands at 0.93. If compared to the weekly expiry, we find that PCR for monthly expiry is more than the weekly expiry, which shows that the market participants are bearish for the current week but have a sideways to bearish bias for the entire month.