Finance

SPY hedging signals rise as risk-reward tilts to downside

Traders are hedging the market by buying protective puts on SPY and selling covered calls, signaling extreme pessimism in the S&P 500 option market. The RiskDex gauge sits at 6.30, with a recent peak above 7.00, underscoring rising hedging costs and a potential near-term volatility spike.

📅 February 25, 2026
⏱️ 2 min read
SPY hedging signals rise as risk-reward tilts to downside

Key Takeaways

  • RiskDex sits at 6.30, a bearish signal, with a recent peak above 7.00 (7.12 closed Tuesday).
  • Traders are hedging SPY by buying protective puts and selling covered calls, signaling extreme pessimism.
  • RiskDex compares 30-day, 1-standard-deviation OTM puts to OTM calls, so higher readings reflect more hedging demand.
  • Average RiskDex since 2005 is 3.75, highlighting how elevated current levels are relative to long-run norms.
  • Rising hedging costs could force non-hedgers to sell if weakness unfolds within the next 30 days.

People Involved

  • Scott Nations Founder and CIO, Nations Indexes

Entities Involved

  • SPDR S&P 500 ETF Trust (SPY) Primary instrument tracked by the article

MarketMoodz Analysis

Investors should treat RiskDex as a forward-looking read on hedging demand: a reading of 6.30 suggests more insurance against downside than upside bets, which can precede bigger moves in SPY if hedges rise further. The setup implies higher near-term volatility and potential selling pressure if hedging costs continue to climb.

Context matters: the article links the current regime to historical anchors like the Aug 2024 drawdown tied to a BOJ rate move and the yen carry unwind, and to 2021 bearish signals. The long-run average RiskDex is 3.75, so current levels are elevated, but methodology and data sources aren’t disclosed, so use this as a directional indicator rather than a forecast. Note that the claim rests on anonymous sources and has not been independently verified; treat it as a sentiment-driven signal to monitor, not a guaranteed outcome.

Source: Original Article

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