The Put/Call ratio (or actually, it's 5 Day Moving Average and 10 Day Moving Average, aka 5DMA and 10DMA) increases when the number of put bought increases relative to the number of call bought and decreases when the number of call bought increases relative to the number of put bought.
Here are the charts of the 5DMA and 10DMA Equity Put/Call ratios which means that they do not include the index options and are usually considered more representative of greed/fear and speculation.
Fear being far more intense than greed, and markets decline faster than markets up legs, generally, the PC Ratio tends to jump quickly and decline in at a more reasonable pace.
As you can see on the two charts below:
- The PC Ratio declines sharply, showing a massive number of call options being bought compared to the put options.
- The dramatic drop in the PC ratio is even faster than the rise, showing that the reversal from fear to greed has been very fast. A lot faster than any point in time, including the 2008-2009 market crash.
- We are now back in the -1SD territory, showing that we are already back to being one standard deviation from the mean of the past three years, showing again a lot of greed and speculation.