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Traders have been placing more bearish bets on equity derivatives in recent days, data showed on Wednesday, indicating less confidence in U.S. stocks rebounding from a sharp sell-off which has particularly hit high-flying tech names.

Investors’ tendency to look past minor wobbles in stocks as the S&P 500 rallied about 90% over the past year or so has been a key feature of the equity market since it rebounded from March 2020 pandemic lows and has helped make market pullbacks shallow and brief. That, however, may be changing.

On Wednesday, Wall Street’s major indexes extended their decline from earlier this week after stronger-than-expected inflation data stoked worries of tighter monetary policy to combat what many investors fear could be a prolonged period of inflation. The S&P 500 Index was down 1.7%, while the Nasdaq Composite was 2.3% lower.

The tech index is down more than 7% from its recent high.

Rather than positioning for a quick rebound, as they have typically done in recent past, traders in the options market are laser-focused on defensive plays.

“The really irrationally bullish equity options traders that I have been warning about for a long time have finally gone away,” said Randy Frederick, vice president of trading and derivatives for the Schwab Center for Financial Research.

Options market measures, including skew - a gauge of demand for upside vs downside - show investors extremely concerned about further weakness for U.S. stocks.

There are few takers for upside bets in equity index options even as defensive options remain in high demand, Charlie McElligott, managing director, cross-asset macro strategy at Nomura, said in a note.

For S&P 500 options, the 30-day implied-volatility skew is higher than it has been 87% of the time over the past 52 weeks, data from options analytics firm trade alert showed.

On Tuesday, the trading in S&P puts - contracts often used for bearish bets - outpaced that in calls - options used for bullish wagers - by a margin of 2-to-1, the highest this measure has been since February. The ratio was similarly high on Wednesday.

The elevated ratio was likely due to less retail call buying as well as more put trading, Susquehanna International Group’s Chris Murphy said.

Meanwhile, the Cboe Volatility Index an options market gauge of expectations for near-term volatility - jumped to a two-month high of 26.96 on Wednesday, highlighting investors’ jangled nerves.

The VVIX Index, which measures the cost of hedging with VIX options, jumped as high as 145.5 on Wednesday.

The VVIX being north of 120 points to a market that is “wound really tight,” Nomura’s McElligott said.

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