The S&P 500 one-month "25 Delta put implied volatility/at-the-money put implied volatility" ratio has fallen to around 1.15, near a one-year low. This reflects that ordinary downside protection has become relatively cheaper, while funds are shifting towards chasing upside. Cboe also confirmed that investors have recently reduced their hedging and bought upside options, with skew across multiple maturities falling to one-year lows.
However, this does not mean investors have completely abandoned defense: deep out-of-the-money puts against extreme downside are still at around the 66th percentile over the past five years. A more accurate conclusion is that the market is reducing its defenses against ordinary pullbacks while retaining tail risk protection.
This structure can continue to drive the market, but once macroeconomic news or leading stocks interrupt the upward trend, less near-term hedging could amplify temporary top-up demand, causing a sudden increase in volatility.
