PCR Ratio vs. Market Sentiment Indicators

Updated on: October 4, 2025 | By Finowings Editorial Team

PCR Ratio vs. Market Sentiment Indicators (MMI, VIX, etc.)

Understanding market sentiment is essential for traders and investors looking to make informed decisions. Among the popular tools are the Put-Call Ratio (PCR) and broader sentiment indicators like the Market Mood Index (MMI) and the Volatility Index (VIX). While all aim to gauge investor sentiment, they differ in scope, methodology, and insights.

What is the Put-Call Ratio (PCR)?

The Put-Call Ratio (PCR) is a derivatives-based indicator that measures the ratio of put options to call options traded in the market.

• PCR > 1: Indicates higher put buying than call buying, signaling bearish sentiment.
• PCR < 1: Suggests higher call buying than put buying, indicating bullish sentiment.

PCR is widely used by short-term traders to predict market reversals or confirm trends. Its simplicity makes it a popular tool, but it only reflects the sentiment of options traders — not the broader market.

What Are Market Sentiment Indicators?

Unlike PCR, broader sentiment indicators provide a more comprehensive view of the overall market mood. Some of the most important ones include:

• Market Mood Index (MMI): Measures overall investor psychology using factors such as FII/DII flows, options data, volatility, and market breadth.
• Volatility Index (VIX): Known as the “fear gauge,” it reflects expected market volatility. High VIX values signal investor anxiety.
• Advance-Decline Ratio (ADR): Shows the ratio of advancing stocks to declining ones, reflecting market breadth and strength.

Key Comparison: PCR Ratio vs. MMI, VIX, and Other Sentiment Indicators

Each sentiment indicator serves a unique purpose. The table below outlines how the PCR Ratio differs from broader market sentiment measures like MMI and VIX.

Aspect	PCR Ratio	MMI / VIX / ADR
Scope of Analysis	Focuses on options trading activity (puts vs. calls)	Combines multiple market and behavioral factors for a broader sentiment view
Time Sensitivity	Highly responsive to short-term movements	Reflects medium- to long-term sentiment patterns
Interpretation Complexity	Simple — based on ratio of puts to calls	Complex — involves multiple economic and technical data points
Use Case	Ideal for short-term trend reversals	Helps gauge market-wide mood and volatility for investment strategy

How to Use PCR and Market Sentiment Indicators Together

For a deeper understanding of market psychology, traders often combine the PCR Ratio with MMI, VIX, and ADR:

• MMI: Determines whether the market is dominated by fear or greed.
• VIX: Confirms volatility and investor anxiety.
• PCR: Identifies short-term extremes to fine-tune entry or exit points.

Key Takeaway

No single tool can fully capture investor sentiment. The PCR Ratio provides a quick look at derivative sentiment, while MMI and VIX give a more comprehensive view of emotional and behavioral trends across the market.

Final Thoughts

The comparison between PCR Ratio and broader market sentiment indicators shows that integrating multiple tools offers more accurate insights. Traders who use a combination of PCR, MMI, and VIX can better anticipate volatility, identify opportunities, and make informed, emotion-free investment decisions.