Why Put/Call Ratios Are 40-Year-Old Garbage

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—Don Kaufman, Chief Market Strategist at TheoTrade

Don Kaufman here. 

Look, I'm about to piss off everyone who's ever read a trading book from the 1980s, but someone needs to say this: Put/call ratios are complete and total crap. And I don't care if you've got Larry McMillan's "Options as a Strategic Investment" sitting on your nightstand like it's the trading bible.

I know Larry personally. 

I have known him since I was five years old. Great guy, wrote a hell of a book for its time. But here's the thing - you're 40 years past that crap now.

The Problem Everyone Misses

Here's what happened this morning that perfectly illustrates why put/call ratios will lead you astray every single time. Palantir was getting absolutely demolished - we're talking real selling pressure. 

The put/call ratio watchers were probably getting all excited: "Oh look, high put/call ratio, very bearish signal!"

Except they have no fucking idea who's on the bid and who's on the offer.

That's the fatal flaw. The put/call ratio doesn't tell you if puts are being bought or sold. It just tells you that puts traded. If a ton of puts trade, you don't know if they're opening or closing positions.

What I Actually Watch (And Why It Matters)

When I looked at Palantir today, I saw 46,000 puts trading at the ask or above. Not "puts traded" - puts BOUGHT. 

There's a bid and an offer. When someone's sweeping them at $4.10 instead of trying to negotiate between markets, that tells you something definitive.

They're not trying to get a better price. They're buying puts with urgency. That's conviction. That's information you can actually use.

This transparency didn't exist when Larry was writing his book. Back then, you got volume numbers and had to guess. Now we can see exactly who's doing what.

The 2025 Reality Check

You want to know what's really driving these moves? 

It's not traditional share buying and selling anymore. Look at AMD from early this morning - 300,000 options contracts traded versus only 15,000,000 shares. Put an extra two zeros on those option contracts, and you're looking at 30 million shares worth of exposure.

But the average option that trades is maybe 50 delta. 

So that 30 million in options exposure translates to about 15 million shares that dealers have to hedge. Then I see exactly 15 million shares traded.

When I was on that side of the business, I'd trade six times more stock than options throughout the day because I'd constantly have to re-hedge as the stock moved around. 

Everything that traded inside AMD today was essentially options-driven, forcing dealers to trade stock.

Why This Actually Matters

Here's what people sitting at home don't understand: Stocks don't go up because people are buying them anymore. That's a bunch of bullshit.

Stocks go up because people are buying calls. That call buying generates gamma. The gamma has to be offset. How? Market makers buy stock against their short calls. You buy a call, they're short the call, they buy the stock. You get caught in a feedback loop.

No one's sitting there going "Oh man, I gotta take profits in my 401k today." The 401k managers are passive - they stuff your money in the S&P 500 mattress and never sell. The only time they sell is when you die or when markets are selling off so hard they panic.

The Transparency Advantage

Today's Palantir action was a perfect example - decisive put buying created a negative gamma squeeze. People buying puts, forcing shares lower, creating more put buying. 

It's a feedback loop you can see in real-time when you watch actual buyers instead of meaningless ratios.

Stop Reading Books, Start Reading Markets

People always ask me what's a good book on finance. I'm like, "I don't know, what's a good book on golf?" 

You can read all the stories you want about the biggest financial failures - those are actually entertaining. 

But if you want to understand what's happening in markets, you need current data that actually tells you something definitive.

The market's evolved. The tools have evolved. The transparency is there if you know where to look. 

While you're calculating put/call ratios, the people who matter are watching the real order flow. And they're not sharing that edge with everyone reading outdated books.

To your success,

Don Kaufman