The put-call ratio is a key indicator used by traders to gauge market sentiment and predict potential price movements in the stock market. It is calculated by dividing the number of put options traded by the number of call options traded during a specific period. A higher put-call ratio indicates that more put options are being bought, suggesting a bearish sentiment or the expectation of a market decline. Conversely, a lower ratio signals that more call options are being traded, reflecting a bullish outlook for the market. Traders use the put-call ratio to assess whether the market is overbought or oversold, which can help in making informed decisions about entering or exiting positions. Although it’s not a perfect predictor, it provides valuable insights when combined with other technical indicators. The put-call ratio is particularly useful in options trading and helps investors manage risk and spot potential market reversals.