The Equity Put/Call ratio is calculated by taking total put volume and dividing it by total call volume traded on options. The calculation is straight forward and simple.
Put/Call Ratio = Put Volume / Call Volume
If the ratio rises, there are an increasing number of puts relative to calls. If the ratio falls there are fewer puts relative to calls.
How to Interpret the Put/Call Ratio
This is actually contrarian indicator for near term trend, on this indicator a reading above 1 will be a bullish signal on nifty future, while ratio below 1 is a bearish signal.
If the Total Put/Call Ratio move above 130, it is bullish signal and where the ratio dipped below 0.65, it is a bearish signals.
Taking a trade using Put Call Ratio
This works most of the time, as put call ratio is based on the F&O data. Where more money is involved than any other instruments. For taking a trade, First of all look for open interest data for both call option as well as put option. Look at support resistance level to get extra confirmation on trade. Once you have a clear trend, either uptrend or downtrend, you can take position in option according to trend. In case of uptrend buy call option or write put option; when in downtrend, write call option or buy put option.