US Stock Options Put/Call Ratio Drops to Four-Year Low, Triggering Warning Signal Seen Before 2022 Bear Market
N.R. Finch
The Cboe equity put-to-call ratio's five-day moving average fell to 0.452 — its lowest since March 2022 and a near-exact match with readings seen just before the last bear market began, pushing bullish sentiment into a historically extreme zone.
What is this indicator actually saying?
The Cboe equity put-to-call ratio — a measure of how much investors are betting on declines versus gains — posted a five-day moving average of 0.452 last Friday, the lowest since March 30, 2022.
This means → demand for call options now exceeds puts by more than two to one; the market is overwhelmingly positioned for further upside.
The 21-day moving average also dropped to 0.493, a low not seen since December 2021. In plain terms = whether you look short-term or medium-term, investor optimism is at a near-four-year extreme.
What happened the last time this reading appeared?
Mark Arbeter, president of Arbeter Investments, noted the five-day average last hit a similar level during the early-2022 bear-market rally peak; before that, a comparable reading appeared during the late-2021 market topping phase.
Both instances were followed by sustained downturns. This reflects a pattern: the reading has repeatedly surfaced inside "market top" windows.
He called the current level "historically very low," stressing it is not yet a direct sell signal but is enough to put investors on alert.
Who is driving this extreme optimism?
Arbeter attributes the surge to the AI boom — retail investor sentiment, fueled by AI narratives, has become excessively euphoric, pouring into call options.
He added that as long as the moving average remains in a "downtrend" (i.e., bullish sentiment is still building), stocks may still have room to run.
But the trend itself is already evidence of overheating. This means → the longer the rally extends and the more extreme sentiment becomes, the sharper the eventual reversal could be.
Behind the index highs, how deep does the internal divergence go?
Mandy Xu, head of derivatives market intelligence at Cboe, noted that single-stock volatility measured by the VIXEQ index is near a one-year high, and its spread against the VIX — a gauge of broad-market volatility — has widened to a record.
In plain terms = the headline index looks calm, but individual stocks are swinging wildly — a handful surge while most tread water or fall.
On Monday the S&P 500 information-technology sector jumped roughly 2.5%, powering the index to a fresh record; yet only tech and energy finished higher out of all 11 sectors.
The index keeps setting records — why worry?
On Monday the S&P 500, Dow, and Nasdaq all posted new all-time closing highs; the S&P 500 has now notched 23 record closes this year.
But gains are heavily concentrated in a few AI-linked stocks. This reflects a dynamic where index "highs" mask broad-based weakness — a hallmark of the 2021–2022 topping pattern.
This means → as the rally's foundation narrows and sentiment indicators sit at historical extremes, the gap between index altitude and internal market health is widening.
Content is for reference only, not financial advice.