A closely watched barometer of activity in the options market is signaling that investors might be getting a little too comfortable with stocks’ upward trajectory.
The Cboe equity put-call ratio, which compares trading activity in bearish put options to bullish call options tied to individual equities, fell as low as 0.44 late last week, its lowest reading since July 11, 2023, according to Dow Jones Market Data. The ratio rose slightly on Monday, but remained at the notably low level of 0.5.
Jonathan Baird, publisher of the Global Investment Letter, said that in the past, when the ratio has sunk to 0.5 or below, stock market pullbacks have typically followed.
“Times when the put/call ratio has declined to current levels or lower have preceded pullbacks in the S&P 500. Conversely, elevated values for the put/call ratio (indicating investor bearishness) have predicted S&P 500 strength,” he said in commentary shared on LinkedIn.
To be fair, other corners of the options market aren’t quite so sanguine. The Cboe Volatility Index, which is driven by activity in S&P 500 index options, has remained notably elevated north of 20, even with the S&P 500 tallying another record high on Monday.
Ken Jimenez contributed reporting