Odds of a Summer Bear Market: What Options Are Pricing for Major U.S. Indexes

Market Analysis

U.S. stocks retreated again Wednesday as fresh selling in the technology sector dragged the major indexes lower after an early rally. With signs of pain in once-frothy AI winners, traders and market makers are recalculating the odds of a deeper decline this summer.

Options prices provide a ready gauge of those odds. By selecting a strike price and looking at an options delta a commonly used proxy for probability investors can approximate the market-implied chance that an index will finish at or touch a specific level by a given date.

For the S&P 500, a technical 20% bear-market drop from the closing high of 7,610 would bring the index to 6,088. Put contracts expiring Aug. 31 are pricing in roughly a 10.5% chance the S&P closes at that level on that date, according to ThinkOrSwim data. The probability that the index touches that price at any point between now and Aug. 31 is typically about double the close probability, or roughly 21%.

The Nasdaq 100, which has a much higher concentration of large-cap, high-volatility AI and tech names, shows materially different odds. Market-implied probabilities suggest about a 32% chance the Nasdaq 100 would reach a level equivalent to a 20% drawdown in the same window. That higher probability reflects elevated implied volatility in the tech-heavy index: the Nasdaq 100s 30-day implied volatility sits near 33, compared with about 22 in the S&P 500.

Small-cap stocks fall between those extremes. The Russell 2000s 30-day implied volatility is about 29, and put option pricing implies roughly a 24% chance the small-cap index would lose at least 20% between now and Aug. 31.

Traders are taking those differences into account in positioning. I think it sounds high in the Nasdaq and low in the S&P 500 from a volatility standpoint Id be selling Nasdaq, buying S&P vol, said Scott Bauer, CEO of Prosper Trading Academy. He noted that idiosyncratic swings in individual stocks concentrated selling among big-tech AI winners are driving the Nasdaqs elevated volatility, and that once this episode of outsized single-stock moves subsides, implied volatility in the Nasdaq should at least stop rising.

The last technical bear market in the S&P 500 occurred in 2022, a roughly 10-month downturn tied to higher interest rates. Intraday, the index also experienced a more-than-21% drop during last years tariff-related sell-off. Those historical episodes are a reminder that large, rapid moves remain possible even outside extended recessions.

What this means for investors: options-implied probabilities are a useful, market-based snapshot of risk, but they are conditional on current prices, volatility, and investor demand for protection. A 10% chance of a 20% S&P drop by Aug. 31 is not negligible, and the roughly doubled chance of touching that level before expiration underscores how much more likely temporarily deep intraday moves can be than closing outcomes.

Short-term positioning will likely continue to hinge on tech volatility, potential macro headlines and geopolitical developments that can move oil and risk sentiment. Investors should treat the probabilities priced into options as one input among many useful for sizing protection or assessing risk, but not a guarantee of outcomes.

Key takeaway

Options markets currently assign higher odds of a near-term, steep decline to the tech-heavy Nasdaq 100 than to the broader S&P 500, with the Russell 2000 sitting between the two. Implied volatility differentials reflect concentrated selling in big AI winners and translate into materially different risk profiles across indexes this summer.