Zhitong Finance APP has learned that, $S&P 500 Index (.SPX.US)$ After the largest correction in history, signs of stability have emerged: traders are no longer betting on another significant decline in the future. Even before last Friday's strong rebound in US stock indexes, Options Trading traders were aggressively selling their S&P 500 Index hedge tools.

Data shows that the cost of Options to hedge against a potential 10% drop in the SPDR S&P 500 ETF over the next three months has fallen to its lowest level since 2023, relative to betting on a 10% increase with Calls.

Although confidence in the S&P 500 Index continuing last Friday's rebound may still be insufficient, options professionals are unwinding their hedges on the downside, which may provide comfort to those trying to determine whether the selling pressure has eased. Alon Rosin, head of equity derivatives at Oppenheimer, stated last Friday, "At least before next week, we may see a period of stability."

The recent stock market sell-off has caused traders to have conflicting views on a key debate that is currently troubling the investment world—whether it is time to buy on the dip. On one hand, concerns about the economic impact of President Trump's tariff policy have led some to wait on the sidelines and lock in profits. On the other hand, retail traders remain optimistic and have increased their exposure to the stock market by taking advantage of the downturn.

Another potentially bullish signal that some investors are turning to is Wall Street's fear index. According to the Cboe Global Markets volatility index (VIX) data, increases in panic levels often correspond to better performance of the S&P 500 Index in the following month. This is because a higher volatility index indicates that the market has been sold off, and as traders flock to cheaper stocks, a rebound may occur.

The VIX Index reached a high point of nearly 30 last week, the highest level since August of last year, placing it in the top decile of the most volatile levels. According to BI's analysis, when this Indicator reaches the top decile of volatility, the median estimated ROI for the S&P 500 Index in the next month is around 2.66%, which is a good sign for investors eager to return to the stock market.

Of course, the decline in the cost of downside protection and the rise in the VIX Index do not precisely indicate that the worst times for the stock market have passed. Other ETFs suggest that the demand for hedging declines through Put Options remains present. For example, for the VanEck Semiconductor ETF, the cost of hedging against declines has actually been net increasing in recent days, indicating that at least some traders do not believe the bottom has been reached.

According to the data, the correlation between higher VIX Index levels and excellent performance of the S&P 500 Index in the next month may also be weak, as its predictive accuracy is 63.5%. Furthermore, at least one Indicator based on a century theory shows that the USA stock market will face more pain in the future.

Dow Theory states that the fluctuations of the Dow Jones Industrial Average must be confirmed by Transportation stocks, and vice versa, in order to be sustained. As of last Thursday's close, the Dow Jones Transportation Average, composed of 20 components, has fallen 19% from its peak last November, hovering near what is considered a bear market. The Dow Jones Transportation Average is a barometer of Consumer and industrial demand.

Adding to this, the Dow Jones Industrial Average fell 9.3% from its record high last December, sending a worrying signal for the broader stock market. In recent days, the stock market has been hit due to heightened concerns about the economy and the aggressive stance of Trump's administration on tariffs.

Todd Sohn, Managing Director of Technical Strategy at Strategas Securities ETF, stated, "As a risk barometer, this is not a very good backdrop for the overall market." He added that the weakness in the Dow has highlighted that Put signals are beginning to come rapidly from different corners of the market, pointing out that home builders, chip manufacturers, and industrial stocks have all seen significant declines.

Even so, the fact that at least some traders are less interested in hedging against further declines indicates that they have some confidence in the stock market rebound since last Friday. Steve Sosnick, Chief Strategist at Interactive Brokers, stated that the shift in Options demand "may indicate" that the situation is stabilizing. However, he does not fully believe that after a day of market strengthening, the market has bottomed out; despite last Friday's "decent performance, we have not yet seen a true capitulation."

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