The Stock Market Hits New Highs Triggering "Fear of Missing Out," Institutions Increase Their Long Call Options Positions

BlockBeats News, August 14th, as the US stock market continues to hit new record highs, investors' primary concern is shifting from a market downturn to missing out on the uptrend. The S&P 500 Index has risen by about 23% since late March, with strong corporate earnings, easing inflationary pressures, and the market scaling back bets on Fed rate hikes. Institutional funds are significantly increasing their allocation to call options.

According to Castle Securities data, the demand for call options on at least 170 S&P 500 Index component stocks has exceeded the demand for options betting on market volatility, with the difference reaching the highest level since at least 2016. Scott Rubner, Director of Equities and Equity Derivatives Strategies at Castle Securities, said the pursuit of upside potential is approaching historic highs. Steve Sosnick, Chief Strategist at Interactive Brokers, referred to these trades as "FOMO insurance," where investors, unwilling to chase the underlying stocks directly, buy call options to retain the opportunity to participate in the uptrend.

Meanwhile, the market's implied volatility continues to decline. The VIX Index has fallen to its lowest level since January this year, and VIX-related indexes have also hit lows since March 17th, making the cost of downside protection relatively low. On Thursday, a large institutional investor spent $23.4 million to buy a large-scale put option portfolio, betting that if the S&P 500 Index plunges by 38% before December 18th, their hedge position will yield significant returns.

Sosnick stated that the current market shows intense pursuit of gains on the one hand and low costs of downside protection on the other, allowing some institutions to participate in the market through call options while also using the opportunity to establish tail risk hedges at a lower cost.