New analysis from OptionMetrics shows that the top 10 stocks in the S&P 500 are signaling a rising risk of a sharp downturn. These companies, which have driven the majority of the index’s recent gains, may now be showing early signs of vulnerability.
Since “Liberation Day,” the S&P 500 has climbed almost 25%. However, the rally has been heavily concentrated. The top 10 stocks — mostly large-cap technology and AI-focused companies — have gained about 46%, while the rest of the index has risen only around 15%.
Abhi Gupta, a quantitative researcher at OptionMetrics, said this type of performance concentration resembles late-cycle patterns seen in past bull markets, when strong index gains masked broader market weakness.
To measure downside pressure, researchers built a tail risk factor using option prices. The metric calculates compensation for rare crash events by analyzing option-implied tail densities. For practical use, tail risk is defined as the ratio of option price to forward price, based on five-day options with a 30-delta from the Volatility Surface table at 3:45 p.m.
For most of the year, tail risk readings for the overall S&P 500 and its top 10 components moved closely together. But in October, a notable split began to form. Crash risk for the top 10 stocks climbed steadily, while the rest of the index stayed relatively stable.
This divergence suggests that investors are paying more for short-dated crash protection on the largest market leaders, indicating a rising implied probability of sharp declines in the very companies that have pushed the index higher.
Several contrarian investors — including Michael Burry — have reportedly taken large put positions, expecting a possible reversal if the AI-driven rally cools.
Historically, an increase in tail risk signals that markets are beginning to price in asymmetric outcomes. When returns are concentrated in a small group of stocks, any shift in sentiment can amplify losses across the entire market.
Overall, the October rise in tail risk shows that investors are increasingly hedging against weakness in the S&P 500’s top performers. Whether this represents cautious positioning or the early stages of a broader sentiment shift remains uncertain.
