SPY Options Signal Deep Bearish Sentiment, But Short-Term Bounce Setup Emerges at Key $675 Support

• SPY trades at $673.46 (-0.8% from open) with 45.9M shares traded
• Put/call open interest ratio hits 1.82 as $650 puts dominate options chain
• Block trade data shows 6,000 contracts bought at SPY20250930C657

Here's what's happening: The options market is screaming bearish with over 216K $505 puts outstanding, yet technicals hint at a potential short-term rebound near critical support levels. This creates a unique trading crossroads where cautious optimism meets institutional bearishness.

Bearish Overhang vs. Institutional Contradiction

The options chain tells two conflicting stories. On one hand, puts dominate with 216K contracts at $505 (a 29% downside) and 87K at $650. This suggests extreme fear of a market collapse - think of it as a hurricane shelter full of traders preparing for the worst. But block trades tell a different tale: 6,000 calls were bought at SPY20250930C657 (strike price $657) and 5,000 at SPY20251121C680. These look like institutional hedges or bets that SPY will stabilize above $650.

The most telling number? That 1.82 put/call ratio. For every call option outstanding, there are nearly two puts - it's like watching a stadium evacuation where twice as many people are fleeing as staying. Yet Bollinger Bands show SPY is trading near the lower band at $655.94, suggesting oversold conditions.

News-Driven Volatility and Sentiment Shifts

Recent headlines paint a mixed picture. Oracle's 14% plunge and Buffett's strategic exits have spooked investors, but analysts are still circling 11 S&P 500 stocks as 2026 darlings. The $0.66% drop in SPY aligns with Vanguard's bearish outlook, yet the same analysts who warn about AI overvaluation are pushing buffer ETFs like BUFR. This creates a tug-of-war between risk-off and long-term optimism.

What's fascinating is how the market is pricing in Trump-era policies while still holding out hope for a Fed-driven rally. The recent block trades on 2025-dated options suggest big players are positioning for a potential bottoming process in early 2026.

Actionable Trading Setups

For options traders:

• Consider selling the SPY20251219P650 put (87,991 open interest) if SPY holds above $675. This gives 2 days to play the "oversold bounce" narrative.
• For a more aggressive play, buy the SPY20251226C690 call (16,064 OI) if SPY breaks above $684 resistance. The 30D support/resistance zone ends at $684.04 - a clean breakout target.

For stock traders:

• Look to buy SPY near $673-675 if price holds above the 200D MA ($621). First target is reclaiming the 30D support at $683.31. Use the $655.94 Bollinger Band as a hard stop.
• For the ultra-cautious: Buy the SPY20251226P670 put (4,184 OI) to hedge against a breakdown below $650. This gives extra time for macroeconomic clarity before expiration.

Volatility on the Horizon

The coming days will test SPY's resolve. With the 200D MA at $621 and 30D MA at $676.44, we're sitting in a technical no-man's-land. If SPY can hold above $670, the long-term bullish trend remains intact. But a breakdown below $655 would validate the extreme put open interest and trigger a re-rating of the entire S&P 500 benchmark.

This is a classic "buy the rumor, sell the news" scenario. The market is pricing in the worst but still expects a rebound. Your job? Position for both outcomes with clear risk management. Remember, Buffett's moves are always watched closely - his recent exits might just be the calm before the next storm.