economy
February 25, 2026
Options trading activity is flashing a warning sign about the market
Traders are buying up protective puts or selling covered calls against the S&P 500, says Scott Nations of Nations Indexes. Volatility is likely on the way.
TL;DR
- Investors are increasingly hedging S&P 500 positions by buying protective puts or selling covered calls.
- This increased hedging activity has made protective options very expensive.
- The "RiskDex," a ratio of out-of-the-money put to call option prices for the S&P 500, is at an extremely bearish level (6.30).
- This bearish signal is more extreme than seen since the August 2024 drawdown and the most bearish since 2021.
- High hedging costs may leave unhedged investors ready to sell if the market shows weakness, amplifying downturns.
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