S&P 500 call volume hits record 4 million as FOMO buying surges

Traders bought a record 4 million S&P 500 call options in a single day, shifting the index's options skew.

More than 4 million S&P 500 call contracts changed hands Tuesday, a record, as traders piled into bullish options on the benchmark index.

The two sessions through Tuesday were a "one-way flow in orders," said Jason Coogan, who trades S&P 500 options at Simplex Trading on the Cboe Global Markets floor.

Put volume stayed in line with its average, and the index's put/call ratio hit its third-highest reading in nearly 15 years. The S&P 500 closed at its first all-time high since June on Tuesday, with the equal-weighted version reaching 12 new highs over the same stretch — a sign the rally is broadening beyond mega-cap tech.

The surge in upside demand has shifted the index's put/call skew, with calls betting on a 10 percent gain over the next month at their most expensive relative to equivalent puts since March. UBS Group sees the S&P 500 ending the year at 8,100, about 5 percent above Wednesday's close.

A $40 Million Bet Pays Off

One investor bought 120,000 SPDR S&P 500 ETF Trust call options expiring Aug. 14 with a $775 strike at about $3.35 each, paying roughly $40 million in premium, according to Susquehanna International Group. By midday Wednesday the position was worth about $63 million, with the option trading near $5.27.

Earnings Breadth, Not Just AI

"Companies continue to deliver results that significantly exceed already-high expectations," wrote Scott Rubner, global head of equity and equity derivatives strategy at Citadel Securities, in an Aug. 3 report. "The market is transitioning from one driven by flows to one increasingly led by earnings."

Max Grinacoff, head of equity derivatives research at UBS, said the S&P 500's strength is no longer confined to the biggest beneficiaries of the AI boom. "You're starting to see a rising tide lifting all boats, even tech stocks are no exception," he said. "The potential for earnings growth, particularly among the 'tech-plus' cohort, has not yet been fully reflected in valuations."

The bullish positioning extends beyond options. Hedge funds bought a net $4.8 billion of U.S. equities in the week ended July 31, the second-largest weekly purchase since 2008, according to BofA Securities data cited by The Kobeissi Letter.

Not everyone is convinced the rally rests on fundamentals. ZeroHedge argued that record call volume forces options dealers into aggressive gamma hedging, creating a "permanent distortion" that drives stock prices higher regardless of underlying economic realities.

Tanvir Sandhu, chief global derivatives strategist at Bloomberg Intelligence, said the options market is "pricing in FOMO — investors appear more concerned about missing out on the next leg up than protecting against a pullback." Strong demand for upside calls has kept implied volatility elevated even as equities rise, he said.

The S&P 500 was up 0.1 percent Thursday after edging lower Wednesday, while the SPDR S&P 500 ETF Trust fell 0.16 percent to $768.56 and the Invesco QQQ Trust slipped 0.37 percent to $714.65. The benchmark index has advanced 12.42 percent this year, the Nasdaq Composite 13.40 percent and the Dow Jones 11.37 percent.

UBS strategists recommended a trade on July 20 that sells downside hedges on the iShares Semiconductor ETF and uses the premium to buy six times the notional amount of S&P 500 upside calls. The trade looked risky during the semiconductor selloff in late July and early August but has since proven prescient.

This article is for informational purposes only and does not constitute investment advice.