US Stocks Hit ATH, Igniting FOMO! Citadel: S&P 500 Call Option Demand Surges to Highest Since 2016

US stocks continue to break record highs, and investors' greatest anxiety is no longer a market crash, but rather missing out. This mindset is profoundly reshaping the trading landscape of the options market.

Data from Citadel Securities shows that the excess demand for call options relative to at-the-money options for at least 170 constituents of the S&P 500 has risen to its highest level since at least 2016. Scott Rubner, Head of Equity and Equity Derivatives Strategy at Citadel Securities, wrote in a client report: "Upside demand is accelerating toward historical highs."

Meanwhile, the S&P 500 rose 0.7% on Thursday, setting another ATH (All-Time High). The decline in oil prices combined with signals of easing inflation pressure in the US prompted traders to lower their bets on Federal Reserve rate hikes, further boosting market sentiment. Since the end of March, the index has accumulated a gain of approximately 23%.

FOMO Drives Rush for Call Options

The core logic driving this wave of option buying is what Steve Sosnick, Chief Strategist at Interactive Brokers, calls "FOMO insurance"—hedging demand born from the fear of missing out.

Sosnick explained that some institutional investors are concerned about current high valuations and overstretched momentum. Unwilling to chase the rise by purchasing stocks directly, yet reluctant to miss the market move, they have turned to buying call options. This strategy allows them to capture upside gains without fully tying up capital. "If an institutional investor believes valuations are high and momentum is excessive, but does not want to miss the rise, they have the incentive to buy call options," he stated in a phone interview.

Strong corporate earnings performance has provided fundamental support for this sentiment.

US companies just recorded the strongest quarterly earnings growth since the post-pandemic recovery in 2021, prompting long-time bull and strategist Ed Yardeni to raise his forecast target for the S&P 500.

Call Option Premiums Backed by Fundamentals

Not all market participants view this call option frenzy as purely a sentiment signal.

Christopher Jacobson, Co-Head of Derivatives Strategy at Susquehanna International Group, believes that the bidding up of call options is supported by actual price movements.

"You see call options being pushed higher, but this is corroborated by the price volatility we actually observe at both the individual stock and index levels," he said.

This statement implies that current option pricing is not a speculative bubble detached from reality, but rather a reasonable reflection of realized volatility, meaning the market's optimism has some fundamental basis.

Low Volatility Suggests Hedging Window May Have Opened

However, there are also signs that this surge in volatility and the call buying frenzy may be nearing an end.

Data from Cboe Global Markets shows that expected implied volatility for individual stocks over the next 30 days has declined. The Cboe Volatility Index (VIX), which measures the expected volatility magnitude of the S&P 500 over the next month, has dropped to its lowest level since January of this year, while the VIX equal-weighted index fell to its lowest point since March 17. Both indicators suggest that the cost of hedging against downside risk is currently low.

On Thursday, institutional investors took action—one institutional investor spent $23.4 million to purchase a series of put options. This portfolio will yield substantial returns if the S&P 500 falls by 38% before December 18.

Sosnick used a weather analogy to highlight the contrarian logic: "If it is the dry season, no one wants to buy an umbrella. But that might be precisely the best time to buy."