Put Call Ratio Trading Strategy: Statistics, Facts And Historical Backtests!

The Put-Call ratio divides the volume or open interest among both puts and calls for a certain instrument or asset class on a daily basis. The ratio can be used in different ways. Our own backtests reveal that there are better sentiment indicators out there, for example, the VIX-indicator.

In the backtest we test the following:

- After an extreme reading (over 3), what is the average gain in the next N-days?

We use Amibroker’s strategy optimization feature and we get the table (shown in the image below) for our trading strategy.

The first column shows the number of days until we exit. For example, after 115 days the average gain per trade is 6.36% (not including dividends).

We also explained the Put-Call ratio calculation, it's effectiveness here >>

https://www.quantifiedstrategies.com/put-call-ratio-backtest-strategy/