Can somebody explain to me why a put to call ratio of >1 is bearish, and <1 is Bullish.
I'm troubling to understand because of the following scenario. Say you sell a in the money call to the market maker, the person selling the call is bearish, but that call would be counted in the in the denominator driving down the P/C ratio making it a bullish sentiment.
Alternatively, if somebody sells a put to the market makers, assuming the contract is going to expire worthless, they would have a bullish or neutral sentiment. However, the contract gets counted in the put category driving the P/C ration higher showing a bearish sentiment.
The only way that I can think would mitigate this, would be that this metrics somehow excludes contracts bought to open by the market makers.
If somebody would enlighten me on how this works it would be great.
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