A revised version of the put/call ratio that uses the dollar value of traded options instead of the volume statistics. In other words, it calculates the total dollar value of premiums paid for all the put contracts divided by the total value of premiums paid for all the call contracts.

For example, using the conventional method of sentiment measurement, a total of 1000 puts and 100 calls would constitute a ratio of puts to calls of 10:1. However, if the 1000 puts were valued at $1 each and the 100 calls were valued at $10 each, the dollar-weighted value of the puts would be exactly equal to the dollar-weighted value of the calls, and the dollar-weighted put to call ratio would be 1:1 instead of 10:1. The dollar-weighted adjustment is particularly necessary in order to account for the varying costs of the options. In other words, by multiplying the put volume by the put price and the call volume by the call price, it can be more accurately compare the dollars invested. By dividing the put activity by the call activity, market sentiment can be calculated.