Open Your Free Demat Account
Enjoy low brokerage on delivery trades
Authorised Stocks: Meaning, Example & How to Calculate
By Bajaj Broking Team
August 11, 2023
4 mins read
News
Summary:
Authorised stocks are simply the upper limit of shares a company is allowed to issue. Think of it as a cap written in its formation papers. It does not mean all those shares are already in the market. Companies often keep some aside for future needs, like raising funds or stock-based benefits. Any change in this limit normally needs approvals and filings.
When a company is formed, it fixes a maximum number of shares it is allowed to create. This limit is called authorised stocks. You’ll find it mentioned in the company’s charter documents filed at registration.
Not all of these shares are issued to investors at once. A company may release only what it needs. The balance can remain unused and be issued later if funding needs arise.
If the company wants to increase this limit, it cannot just decide internally. Shareholder approval and formal filings are normally required. So authorised stocks act more like a permitted cap than shares already in circulation.
Put Call Ratio Meaning
To grasp the core pcr ratio meaning, it is essential to look at it as a psychological baseline of the derivatives market. The pcr ratio meaning simply reflects whether traders are leaning towards defensive hedging or aggressive buying. By tracking this metric, you can see if the overall market mood is changing from overly optimistic to highly cautious before price changes completely manifest on the charts.
The put-call ratio is a market indicator that compares the volume of traded put options with the volume of traded call options. You use this pcr ratio to observe prevailing market sentiment reflected through option activity. It provides a clear indication of prevailing sentiment based on option participation across indices and individual stocks.
This ratio may change as traders adjust option positions in response to news, corporate earnings results, or global macroeconomic events. However, a pcr ratio does not predict price movement on its own; it only reflects the actual positioning behavior shown in option contracts. You interpret it to understand whether caution or comfort is influencing current option positioning.
Additional Read: What are Put Options?
How is Put Call Ratio Calculated?
Understanding the mathematical side requires looking directly at the core formula used by market participants. The standard pcr ratio formula can be computed using two different metrics: trading volume or outstanding open interest.
The standard volume-based pcr ratio formula is expressed as:
pcr ratio formula (Volume-based) = Total Volume of Put Options / Total Volume of Call Options
Alternatively, the open interest-based pcr ratio formula is calculated as:
pcr ratio formula (OI-based) = Open Interest of Put Options / Open Interest of Call Options
These two calculation methods reflect slightly different market insights. While a volume-based pcr ratio focuses purely on daily momentum and high-frequency trading activity, an open interest-based pcr ratio shows the broader market positioning and long-term commitments held by institutional traders over a longer horizon.
For example, if an index has 1,50,000 open put contracts and 1,00,000 open call contracts, the calculation using the pcr ratio formula is:
pcr ratio = 1,50,000 / 1,00,000 = 1.5
This resulting value indicates that the number of outstanding put options is 1.5 times that of call options. Such data is routinely observed in derivative markets and is closely monitored by retail and institutional participants to assess the prevailing sentiment. If 200 puts and 100 calls are actively traded on an intraday basis, the daily trading pcr ratio becomes 2.0, indicating that for every single call option bought, two put options are being accumulated.
Additional Read: Current Ratio
How to Trade Using a Put Call Ratio?
When using this metric for analysis, you examine how active option choices reflect broader market sentiment. You compare the current pcr ratio with actual price behavior on live charts. It is highly recommended to use it as a powerful supporting setup rather than a standalone directional signal.
- Reading High PCR: A high pcr ratio indicates relatively higher put option activity compared to calls. This setup is commonly associated with cautious sentiment or heavy hedging behavior. You should not treat it as an automatic sign of market decline, but compare it with key price structures to see if the market carries genuine fear or simply protective cover.
- Reading Low PCR: A low pcr ratio indicates relatively higher call option activity. Traders in this scenario generally expect strength or upcoming price stability. You must still confirm this momentum with price trends, as a low ratio reflects optimism that can shift rapidly if negative news enters the market.
- Watching Extreme Levels: When the pcr ratio reaches extreme structural levels, it often indicates highly stretched sentiment conditions. An imbalance of too many puts or too many calls highlights areas where sudden contrarian reactions might occur, allowing you to match these extremes with chart breakouts.
- Combining PCR with Trend: This sentiment metric is most effective when interpreted alongside prevailing price trends. A rising market accompanied by a low ratio reflects stable, confident sentiment, while a falling market with a high ratio reflects heavy defensive positioning.
- Studying Intraday Shifts: Tracking rapid intraday changes in the ratio shows exactly how derivative traders react to breaking news or sudden price spikes. A swift intraday spike or drop offers short-term structural clues when paired with immediate volume data.
Analysis of Put Call Ratio
When analyzing the active pcr ratio, you observe whether option participants lean towards heavy caution or structural comfort. You check how the ratio changes dynamically alongside underlying asset prices. For instance, a rising ratio during a declining market trend often indicates heavy defensive positioning, reflecting retail fear, structural institutional hedging, or short-term portfolio protection.
Conversely, a falling ratio during a steady rising market displays structural confidence. Directional assumptions should still be avoided without secondary verification. You use the data to observe whether derivatives traders actively support the current price move or react strongly against it. Therefore, this tool is best treated as a clear sentiment indicator rather than an isolated execution trigger.
You should also systematically compare historical values across multiple days. A steady, multi-day rise shows building put interest, while a consistent drop shows growing call accumulation. Because interpretation varies significantly between index-level metrics and individual stocks, always analyze individual company developments alongside the broader market flow.
Additional Read: What Is a Dividend
Significance of Put Call Ratio
The pcr ratio helps you understand the immediate market mood by showing whether option traders lean heavily towards puts or calls. It functions as a sentiment observation tool that gives you clear insight into the emotional or protective behavior shaping derivative flows. However, the exact meaning of the ratio changes as macroeconomic conditions shift.
- Shows Market Tone: It reveals whether participants are leaning towards protective puts or speculative calls, highlighting the underlying tone during major events, quarterly results, or unexpected volatility spikes.
- Reveals Shifts in Sentiment: A steadily rising ratio reflects growing caution across the trading floor, while a falling ratio indicates ease and retail comfort, helping you track momentum transitions.
- Helps in Context Checking: It becomes highly actionable when matched directly with technical charts. Comparing historical ratio levels with current horizontal support and resistance zones helps you verify whether traders are actively resisting or supporting a specific price breakout.
PCR - The Contrarian Indicator
The pcr ratio is frequently utilized by experienced market professionals as a powerful contrarian indicator. When put option activity becomes disproportionately high, pushing the ratio to extreme historical peaks, it reflects an environment of max pessimism. From a contrarian perspective, this extreme build-up of puts often signals that the market is structurally oversold and may be due for a sharp positive reversal or relief rally once the selling pressure cools off.
On the flip side, exceptionally low ratio levels point to unbridled optimism and aggressive call accumulation. When retail participants buy calls excessively without hedging, the market may become dangerously overextended. Contrarians view these ultra-low levels as warning signs of overconfidence that often precede a sharp market correction. Always match these extreme indicator levels with clear price structure, volumes, and candlestick patterns before forming a definitive trading view.
Additional Read: What is Contrarian Investing?
Limitations of Put Call Ratio
Despite its widespread utility across Indian derivative segments, this indicator comes with a specific set of operational limitations that traders must recognize.
- Lagging Indicator: Because the ratio is formulated using completed transactions and existing positions, it acts as a lagging indicator that reflects historical data rather than predicting exact future price pivots.
- Hedging vs. Speculation: The mathematical calculation cannot differentiate between defensive puts bought by long-term portfolio investors for insurance and speculative puts bought by short-term short-sellers, which can cloud its predictive precision.
- Market Noise: During macro events or highly volatile trading weeks, short-term noise can cause rapid intraday spikes that distort long-term sentiment trends.
- Isolation Risk: Relying exclusively on this single metric without confirming volume, price action, or open interest structures can easily lead to false directional signals.
- Historical Comparison Limits: As structural market dynamics, liquidity levels, and option regulations evolve over the years, comparing current ratios directly with older historical averages may occasionally offer limited accuracy.
Download App
There are many advantages of issuing shares — both for the company as well as its shareholders. However, just like there’s a limit on the maximum amount of loan a business can avail of, there’s also a limit on the number of shares it can legally issue.
This is where the concept of the authorised stock becomes relevant.
What is Authorised Stock?
When a company is formed, it decides the maximum shares it can issue. That approved number is called authorised stock. It sits in the company’s official charter papers and acts like a legal upper limit.
This does not mean all those shares are sold right away. Many firms release only a portion in the beginning. The remaining shares stay available for later needs like raising capital, expansion, or employee share plans.
If the company wants to increase this cap, it usually needs shareholder approval and proper regulatory filings first.
How to Calculate the Authorised Shares of a Company?
Now that you know the definition of authorised stock, here’s a quick overview of how you can calculate it using a simple mathematical formula.
Authorised stock = Total number of issued shares + Total number of shares yet to be issued |
Thankfully, you don’t have to use the above-mentioned formula to calculate the authorised share capital of a company. According to Indian laws, every registered company should list the details of its authorised stock in its Articles of Association (AoA) and the Share Capital section of its Balance Sheet.
An Example of Authorised Stocks
Here’s a hypothetical example to help you understand the meaning of authorised stock.
Assume there’s a company called ABC Limited. The authorised equity share capital set at the time of incorporation is 20 lakh equity shares. The company has already issued about 12 lakh equity shares. Now, the company wants to expand its business and seeks to raise funds to the tune of ₹10 crores from the public.
To do that, it would have to issue around 10 lakh additional equity shares. However, due to the authorised stock limit, the company can only issue about 8 lakh equity shares before it reaches its limit.
To bypass this limitation, the company calls for a general meeting and seeks approval from its shareholders to increase its total authorised share capital from 20 lakh equity shares to 40 lakh equity shares. The shareholders approve the increase and the company goes on to issue 12 lakh additional equity shares and raise ₹10 crores from the public.
Authorised Shares, Issued Shares and Outstanding Shares: A Comparison
As an investor, it is crucial to know the difference between authorised stock, issued stock and outstanding stock. Here’s a table outlining the key differences between these three types of share capital.
Parameters | Authorised Shares | Issued Shares | Outstanding Shares |
Definition | Refers to the total number of shares a company is legally allowed to issue | Refers to the total number of shares a company has already issued | Refers to the total number of shares that have been subscribed |
Quantity | Consists of issued shares and unissued shares | Is a subset of authorised shares | Is a subset of issued shares |
Treasury stocks | Features treasury stocks, i.e., stocks that have been bought back by the company | Also features subscribed shares that have been bought back by the company | Doesn’t feature stocks that have been bought back by the company |
Articles of Association | Mentioned in the Articles of Association | Not mentioned in the Articles | Not mentioned in the Articles |
Why Do Companies Not Issue All of Their Authorised Stock?
Companies usually keep part of their authorised stock unused on purpose. It gives them room to act later without changing their core documents every time they need fresh capital or a strategic move.
Holding back shares helps with future fundraising, mergers, or employee stock plans. If all shares were issued early, the company would need extra approvals and filings each time it wanted to create more.
Unissued authorised stock also helps with timing. Firms can release new shares when market conditions look better. This approach gives flexibility and avoids rushing important funding decisions under pressure.
Additional Read: Authorised Share Capital
Share this article: 
Disclaimer :
Investments in securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes. The securities are quoted as an example and not as a recommendation. Past performance is not necessarily a guide to future performance.
The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and/or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.
Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.
BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.
Content Partner - Dalal Street Investment Journal Wealth Advisory Private Limited
This article is for educational purposes only and should not be considered investment advice. Market investments are subject to risks. DSIJ Wealth Advisory Private Limited is a SEBI-registered Research Analyst (Reg. No: INH000006396) and Investment Adviser (Reg. No: INA000001142). Please consult your financial adviser before investing.
For more disclaimer, check here : https://www.bajajbroking.in/disclaimer
Read More Blogs
Publish Date:
11 Aug 2023
Our Secure Trading Platforms
Level up your stock market experience: Scan the QR to download the Bajaj Broking App for effortless investing and trading
+91
|
Open Your Free Demat Account
Enjoy low brokerage on delivery trades
+91
|
Products
Calculators
Mutual Funds & SIP
Important Links
Corporate
Popular Stocks
- Reliance Industries Share Price
- Tata Steel Share Price
- Adani Power Share Price
- HDFC Bank Share Price
- Infosys Share Price
- ITC Share Price
- Jio Finance Share Price
- Tata Power Share Price
- TCS Share Price
- Vedanta Share Price
- Adani Green Share Price
- Bajaj Finance Share Price
- ONGC Share Price
- Suzlon Energy Share Price
- Vodafone Idea Share Price
- BPCL share price
- Adani Port Share Price
- Coal India Share Price
- Dixon Share Price
- NMDC Share Price
- SAIL Share Price
- Asian Paints Share Price
- Hindustan Unilever Share Price
- ICICI Bank Share Price
- Indusind Bank Share Price
- Tata Technologies Share Price
- Ashok Leyland Share Price
- IDFC First Bank Share Price
- Maruti Share Price
- Polycab Share Price
- BEML Share Price
- Alok Industries Share Price
- South Indian Bank Share Price
- Indus Towers Share Price
- MTNL Share Price
- Adani Gas Share Price
- View More
Indian Indices
Global Indices
Sector Wise Stocks