Options Flow: Put/Call Ratio, IV and Open Interest

What is options flow?

Options flow analyzes trading in options contracts to detect how institutional market participants are positioning themselves. Large options orders leave footprints — before the stock price moves.

The 3 core indicators

Put/Call Ratio

The put/call ratio compares how many put options (bets on falling prices) are traded relative to call options (bets on rising prices).

Ratio Interpretation Signal
< 0.7 More calls than puts — market bullish Long
0.7 – 1.0 Balanced Neutral
> 1.0 More puts than calls — market bearish Short

An extremely low ratio can also signal overheating — consider it as a contrarian indicator.

Implied Volatility (IV)

Implied volatility measures what price swings the market is pricing in for the future.

IV state Meaning
IV low (< 20 %) Market expects calm — trend usually continues
IV high (> 40 %) Market expects big move — direction unclear
IV crush after earnings Options lose value sharply after the report

Open Interest

Open interest shows how many open options contracts exist at a given strike price. Large OI concentrations ("gamma walls") often act as price magnets or brakes.

  • High call OI near current price → Market makers must hedge → Upward pressure possible
  • High put OI below current price → "Floor" — support level

How 360° evaluates options flow

Put/Call ratio < 0.7 AND IV in normal range  →  Long signal
Put/Call ratio > 1.0 AND IV rising           →  Short signal
Otherwise                                     →  Neutral

Unusually large single orders ("unusual options activity") are flagged separately — a possible indicator of informed trading.

Limitations of options flow

  • Options can be bought for hedging — not every put is a bet on falling prices
  • Dark pools — part of options trading is not publicly visible
  • Retail traders pay higher spreads than institutional participants
  • IV anomalies shortly before earnings are difficult to interpret

All 8 methods → | Chart analysis → | Fundamental analysis → | Pricing →

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