Extreme Nifty put-call ratios told us almost nothing about the next move

By Strota Newsroom · 2026-10-22 · How Strota reports

Traders love to quote the Nifty put-call ratio when it hits an extreme. Some read a high ratio as a floor, the footprint of option writers happily selling puts beneath the market. Others read the very same number as a sign the crowd is too comfortable and a fall is due. We tested both stories on 565 sessions of data, and the answer is blunt: extreme readings added nothing reliable to what the Nifty does on an ordinary day.

That matters because the ratio is everywhere. It turns up on broker screens, in morning notes and in social media threads, usually presented as if it carries a signal. Looking one, five and 20 sessions ahead, the extremes behaved much like any other day. The single result that looked promising is the kind of thing a fair coin produces if you flip it often enough.

The ratio here is simple: total put open interest divided by total call open interest, taken across every Nifty expiry from NSE's daily F&O bhavcopy. The sample runs from 8 July 2024 to 19 October 2026. Every session was ranked by its reading, and the two tails were pulled out: the bottom fifth, where the ratio sat at 0.80 or lower, and the top fifth, at 1.14 or higher. Everything in between formed the middle.

For each group we measured the Nifty's return over the following one, five and 20 sessions and set it against the full sample. To judge whether any gap was real, we ran a permutation test: 20,000 random draws of the same number of sessions, checking how often chance alone matched the share of up moves and the average return the extreme groups produced.

One comparison stood out. On the day after a high reading, the index finished higher 59.3% of the time across 113 sessions, against 49.6% for all 564 next-day observations. The permutation p-value on that up-share was 0.025, inside the conventional 5% threshold. Taken on its own, that looks like a modest win for the camp that treats heavy put writing as support.

It does not survive scrutiny. First, it was one of twelve comparisons, and with twelve tries at a 5% bar you would expect roughly one false alarm from luck. Second, the size of the gains on those days was no different from normal: the high group's average next-day return was +0.041%, with a p-value of 0.489, nowhere near significant. More up days with no extra return is not much of an edge. Third, it vanishes as soon as you look further out.

At five sessions, the high-ratio group was up 54.5% of the time over 110 windows, with a p-value of 0.134 on that share and 0.87 on the average. At 20 sessions it averaged +0.122% against -0.21% for the whole sample, but a p-value of 0.256 says that spread sits comfortably within what random draws produce, and its up-share of 54.2% was barely distinguishable from the 52.8% base rate.

The contrarian reading fared no better. After a low ratio, the next session was up only 43.5% of the time across 115 sessions, which sounds bearish until you see the p-value of 0.144. Over five sessions the low group's up-share of 47.8% was essentially the base rate of 47.9%, with a p-value of 1.0. Over 20 sessions it was actually up more often than average, 56.4% against 52.8%, the opposite of what a warning light should do, and again not significant at 0.456.

Even if the next-day effect were genuine, it would be close to useless. An average gain of 0.041% is dwarfed by what it costs to act on it. A pattern can be statistically curious and still be worth nothing in practice; this one fails on both counts.

There are honest limits. The sample covers only about two years, all within a single market regime, so a different backdrop could tell a different story. We used the all-expiry ratio; a version built from the nearest expiry alone, or one tracking changes in open interest, might behave differently and was not tested here. And the five- and 20-session windows overlap, which makes neighbouring observations less independent than they appear.

What the data does establish is narrower but useful. At the extremes we measured, the Nifty put-call ratio described how options traders were positioned, not where the index went next. A forecast built on it is leaning on a pattern this sample could not find.

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