US stock options data signals a warning: the last time this occurred was on the eve of the 2022 bear market.

Title: "US Stock Options Data Signals Trouble: The Last Time This Signal Appeared Was Before the 2022 Bear Market"
Author: Zhang Yaqi, Wall Street Insights

Author: Rhythm BlockBeats

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Reprint: Mars Finance

Optimistic sentiment in the US stock market has spread to the options market, with a key indicator falling to its lowest level in nearly four years, closely matching the levels seen just before the start of the 2022 bear market, prompting cautious warnings from market participants.

According to Dow Jones market data, the Cboe Equity Put-to-Call Ratio's five-day moving average dropped to 0.452 last Friday, the lowest since March 30, 2022, indicating that investors' demand for bullish options exceeds bearish options by more than double.

Mark Arbeter, President of Arbeter Investments, told MarketWatch that this reading "is extremely low historically," and although it is not an immediate sell signal, it is enough to alert investors. He believes this reflects that, driven by the AI boom, retail investors' sentiment has become overly exuberant.

The last time this indicator reached a similar level was during the rebound peak early in the 2022 bear market; the earliest occurrence was around the market top at the end of 2021. After both historical precedents, the stock market experienced sustained declines.

Meanwhile, Mandy Xu, head of the derivatives market intelligence at Cboe, pointed out that although the overall market volatility index VIX continues to decline, the implied volatility of individual stocks has surged significantly, with related spreads expanding to record highs, revealing a high degree of internal market divergence.

However, despite the warning signals, the bullish momentum remains intact. On Monday, the three major indices—the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite—all hit new all-time closing records. According to Dow Jones market data, the S&P 500 has recorded 23 new all-time highs so far this year.

Put-to-Call Ratio Falls to Four-Year Low

The Cboe Equity Put-to-Call Ratio's five-day moving average closed at 0.452 last Friday, the lowest since March 30, 2022. Mark Arbeter pointed out that this figure indicates that demand for bullish options is more than twice that for bearish options, placing it in an extremely low range historically.

The 21-day moving average of this indicator is also trending downward, falling to 0.493 last Friday, a new low since December 9, 2021 (when it was 0.490). Arbeter said that as long as this moving average remains in a "downtrend," the stock market could still have room to rise, but the trend itself is evidence of market overheating.

It is worth noting that bearish options can serve both as directional bets on a market decline and as hedging tools in portfolios. When investors heavily buy bullish options and hedging demand sharply declines, it often indicates that market risk appetite has approached extreme levels.

Historical Precedents Point to Pre-2022 Bear Market

Arbeter reviewed history and found that the last time the five-day moving average reached a similar level was during the initial "counter-trend rebound" of the 2022 bear market; further back, a similar reading appeared around the market top at the end of 2021.

"At the top of the 2022 bear market, we saw similar levels," he said.

After these two historical points, the US stock market entered sustained downward cycles, providing context for the warning signals conveyed by the current indicator. Arbeter also emphasized that the current situation does not constitute a clear sell trigger, but historical experience suggests investors should exercise restraint when chasing gains.

Market Internal Divergence Intensifies, AI Concept Dominates Gains

Contrasting with the calm appearance of the overall market, internal market divergence is becoming significant. In a report released Monday, Xu noted that the volatility of individual stocks measured by the VIXEQ index approached a one-year high last week, with the spread between VIX and VIXEQ expanding to record levels.

This is the latest signal that internal market divergence has reached an extremely high level in nearly two months—stocks related to artificial intelligence have led most of the gains in the S&P 500.

On Monday, the S&P 500 Information Technology sector surged about 2.5%, becoming the core driver of the index's new all-time high. FactSet data shows that among all 11 sectors, only technology and energy closed higher on the day, with most other sectors declining.

The rise in the energy sector is related to geopolitical tensions. Reports indicate that Iran has ceased peace negotiations with the US and is seeking a complete blockade of the Strait of Hormuz— a key waterway for Middle Eastern oil and gas exports—pushing international oil prices higher.

However, US President Trump responded via social media Monday afternoon, stating, "Negotiations with the Islamic Republic of Iran are still rapidly progressing."