PCR extreme contrarian
The put-call ratio compares how many puts and calls are open across the NIFTY option chain. This strategy reads it once a day at 15:20 and treats extreme readings as a signal. A PCR of 1.3 or more means heavy put writing, read as confidence below the market, so it buys NIFTY futures the next morning; 0.7 or less means heavy call writing, so it sells. It exits when PCR returns to normal.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
In this test the contrarian PCR trade made its money in stressed, falling markets. Trades entered while NIFTY was below its 20-day average earned ₹1,74,744 over 25 trades, while those in an uptrend lost ₹24,633 over 19. Choppy entry days made ₹1,23,991 over 14 trades, but quiet ones lost ₹28,483 over 22. India VIX told the same story: above 14.5 made ₹88,526 over 11 trades, below 11.5 lost ₹25,395 over 16. The mechanism is that extreme readings after a sharp, nervous fall tend to mark washed-out positioning that snaps back; in calm, rising markets an extreme reading is just a trend continuing.
About this strategy
- Each day at 15:20, compute PCR as total put open interest divided by total call open interest over all strikes of the nearest NIFTY expiry that is not expiring that day.
- PCR of 1.3 or higher signals a long; 0.7 or lower signals a short.
- Enter one lot of the near-month NIFTY future at 09:20 the next trading day, so the signal is never traded on the same print it was measured from.
- Stop: one ATR(14) of the daily futures bars, measured at the close before entry, checked tick by tick.
- Exit at 15:20 on the first held day when PCR is back between 0.8 and 1.2, or on the fifth trading day held, or on the futures contract's own expiry, whichever comes first.
- After a trade, wait until PCR has been inside the 0.8-1.2 band at a daily check before taking another signal.
Why traders use it
Option writers tend to be well-capitalised, and heavy put writing suggests they expect the market to hold up, while heavy call writing suggests a ceiling. At extremes, positioning is often crowded, which makes the readings popular as contrarian markers. PCR is easy to find on any option chain screen and changes slowly, so a once-a-day check suits traders who cannot watch the market intraday. Requiring PCR to return to normal before a new trade prevents repeated entries on the same extreme.
The year in plain words
On NIFTY futures from 1 Oct 2025 to 30 Sep 2026 with default settings, the strategy took 45 trades and won only 38% of them, but made ₹1,48,818 before costs (profit factor 1.9) and ₹1,36,719 after ₹20 per order and bid-ask slippage. Winners averaged about ₹18,433 against losers of ₹5,877. The result was concentrated: March made ₹1,16,103 and April ₹73,970, together more than the whole year, while October, February and July each lost close to ₹28,000 to ₹31,000. Thirty-seven trades exited on PCR returning to the neutral band and only three on the ATR stop. Maximum drawdown was ₹50,658 before costs.
What the settings do
Risks
- Two months produced more than the whole year's profit, so results without them would have been negative.
- Trades are held overnight for several days, and gaps can fill the ATR stop well past its level.
- PCR thresholds of 1.3 and 0.7 are common rules of thumb rather than tested levels, and traders disagree on which way PCR should be read.
- A full NIFTY futures lot can swing by tens of thousands of rupees during a trade.
Who it suits
Positional traders who want a once-a-day, data-driven signal and have margin for a NIFTY futures lot held over several sessions. It requires patience through long losing stretches waiting for a few large wins.
Questions traders ask
What does a high PCR mean in NIFTY?
A high put-call ratio means more put open interest than call open interest. Because puts are usually written by sellers who expect the index to hold above their strikes, a high PCR is often read as support beneath the market. Very high readings are treated by some as a sign that the market is oversold and may bounce.
Is the PCR contrarian strategy profitable?
In this backtest on NIFTY futures from 1 Oct 2025 to 30 Sep 2026 it made ₹1,48,818 before costs and ₹1,36,719 after ₹20 per order and bid-ask slippage, with statutory charges excluded. Almost all of it came in March and April, and past results do not guarantee future ones.
Why trade the next morning instead of at the close?
The PCR reading is taken at 15:20. Trading at that same moment would use a value that a real trader could not act on in time at the close. Entering at 09:20 the next day keeps the backtest honest, at the cost of facing the overnight gap.
Which expiry's PCR is used?
The nearest NIFTY expiry that is not expiring that day, usually the next Tuesday weekly. The expiring series is skipped on its own expiry day because its open interest collapses into settlement and would distort the ratio.