There are two types of options: calls and puts. Call options give the owner the right to buy a stock or futures contract at a predetermined price for a set amount of time. Put options give the owner the right to sell a stock or futures contract at a predetermined price for a set amount of time. Investors generally buy puts when they feel the price of a particular instrument will decline. The opposite is true for calls.

The put-call ratio compares the volume of put and call options and is often used to determine market sentiment.