FOMO-induced panic buying has triggered a surge in bullish options for the S&P, leading to a remarkable emergence of "one-way order flow" in the market.

Traders' enthusiasm for options betting on further increases in the S&P 500 index continues to heat upthe benchmark stock index, which has been overshadowed in recent months by the more volatile Nasdaq 100 index, is now regaining fervent support in the options market. On Tuesday, the trading volume of call options for the S&P 500 surpassed four million contracts, setting a new historical record, while the volume of put options remained in line with the average. Jason Coogan, a senior trader at Simplex Trading, which operates within the Chicago Board Options Exchange (Cboe) S&P 500 options trading arena, described the market as exhibiting a "one-way order flow" over the past two consecutive trading days as of Tuesday. This marks a significant shift from the pattern observed over the past two monthswhen a lack of overall volatility at the index level and lower correlations among individual stocks compared to the tech-dominated Nasdaq 100 led traders to generally avoid making major directional bets on the S&P 500. Despite the recent uptick, UBS Group AG strategist Max Grinacoff stated that overall S&P 500 options still appear relatively cheap, since the upside potential brought about by stronger-than-expected earnings has not been fully priced in. "Potential earnings growth, especially from the 'Tech+' group, has not been fully reflected in valuations," Grinacoff said in a phone interview, adding that the market is still digesting the recent influx of strong earnings reports. "We are quite optimistic about the future from a fundamental standpoint," noted the firm's head of equity derivatives research. Grinacoff expects the S&P 500 to finish the year at 8,100 pointsrepresenting nearly a 5% upside from Wednesday's closing pricewith this bullish cornerstone heavily reliant on a shift in market participation from tech giants to a broader economic landscape. Even though the S&P 500 reached its first historical high since June on Tuesday, the equally weighted version of the index has set 12 historical highs during this period. Growing optimism around the prospects for an Iran deal, corporate profit expansion comparable to the post-major recession cycle, and economic data showing record business activity have further bolstered bullish sentiment. "Its not just about 'Tech+' leading," Grinacoff said when discussing sectors that are major beneficiaries of the AI wave. "Youre starting to see a rising tide lift all boats, including tech stocks." Meanwhile, Grinacoff noted that even if the index rises, the implied volatility of the S&P 500 might remain elevated. "If the S&P rises by 2% every day, volatility cannot help but move upwards," he added. It remains uncertain whether the demand for call options can be sustainedon Wednesday, as the index retreated from its historical high, traders' preference for upward contracts cooled somewhat. However, the recent surge in call options trading has led to a shift in the put/call skew for the index. The relative demand for call options betting on a 10% rise in the benchmark index over the next month has surged to its highest level since March compared to betting on an equivalent decline. "Companies are consistently delivering results that exceed already high expectations," wrote Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities, in a report on August 3. "The market is shifting from a flow-driven environment to one increasingly dominated by earnings." For investors positioning for further upward moves in the S&P 500, UBS strategists proposed a trading strategy on July 20: selling downside protection on the iShares Semiconductor ETF (SOXX) and using the premium to purchase six times the number of call options on the S&P 500. Although this trade appeared highly risky during the semiconductor sector's downturn from late July to early August, it now seems quite prescient. Other investors adopted a more direct strategy on Tuesday during the surge in trading: naked calls. According to analysis by Susquehanna International Group, a noteworthy trade that day included an investor buying 120,000 call options on the SPDR S&P 500 ETF Trust (SPY) with a strike price of $775, expiring on August 14, at a price of approximately $3.35 each, totaling around $40 million in premiums. As of Wednesday afternoon, this position was trading at about $5.27, corresponding to a market value of approximately $63 million. "The options market is pricing in FOMO sentiment," said global derivatives strategist Tanvir Sandhu. "Investors seem more concerned about missing the next wave of upward momentum than guarding against the risk of a pullback, as evidenced by the big shift in skew indicators. The strong demand for upward call options ensures that implied volatility remains robust even in a rising stock market."