The S&P 500 just rebounded by 10%, but Wall Street suggests: Buy "market downturn insurance" quickly!

U.S. stocks have recently experienced a explosive rebound from their lows; however, volatility experts are warning investors not to become too complacent.

For instance, strategists from Susquehanna International Group (SIG) and TD Securities are advising investors to purchase insurance in the options market to prepare for the possibility that U.S. stocks may retreat to the lows seen earlier this month. Since April 2, the price of one-month put options on the S&P 500 index, used to hedge against stock declines, has fallen to historic lows compared to call options that profit from rising stock prices.

Rocky Fishman, former head of equity derivatives strategy at Goldman Sachs and founder of research firm Asym500 LLC, stated:

There are still many economically significant issues in the market, whether it's the severe tariff situation with other countries or a comprehensive 10% tariff. I believe the market is underestimating the extent to which these factors could shake investor confidence.

As of local time Monday, the S&P 500 index has risen for five consecutive trading days, marking the longest streak since November of last year. Since the low in April, the index has rebounded by 10%. The Cboe Volatility Index (VIX), which measures demand for stock market volatility protection, is currently at 25, well below the high of around 60 on April 7.

At the same time, according to a report released by Mandy Xu, head of derivatives market intelligence at Cboe Global Markets, the demand for protection against so-called "tail risks" (insurance against unlikely but potentially catastrophic events) has declined in recent weeks. She wrote in the report that this "is a sign of investor confidence in the 'Trump bottom.'"

However, other market participants hold a different view. Fishman from Asym500 LLC pointed out that realized volatility (a measure of past price fluctuations) is far higher than implied volatility (which reflects expectations of future market fluctuations). In his view, this suggests that investors may have let their guard down, even as they face more uncertainty from trade wars and the heavy scrutiny of corporate earnings and economic data.

Joseph Ferrara, an investment strategist at Gateway Investment Advisers, stated that after taking profits from derivatives during the volatility peak in early April, his firm is looking to buy put options again. In addition to the uncertainty surrounding the global trade war, Ferrara is also concerned that lighter trading volumes in the summer could exacerbate market volatility, thereby increasing overall volatility.

Christopher Jacobson from Susquehanna advised clients "worried that the recent rebound may just be another bear market rally" to hedge at current levels. He wrote in a report last week:

There are still questions regarding the final tariff results, consumer strength, and corporate earnings. The recent upward trend is largely built on generally low trading volumes, and some believe that the rebound is more a function of short covering.

At the same time, TD's Ling Zhou is more concerned about the outlook over the next 6 to 9 months, as economic risks may arise during this period. He recommends selling S&P 500 call options expiring in October and using the proceeds to buy put options