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

S&P 500 call volume hit a record 4 million contracts Tuesday as investors piled into bullish bets on the index's first record high since June.

"The options market is pricing in FOMO — investors' fear of missing the next leg higher outweighs any concern about a pullback," said Tanvir Sandhu, chief global derivatives strategist at Bloomberg Intelligence.

The call/put ratio reached its third-highest reading in nearly 15 years, while the S&P 500's put/call skew posted its steepest two-day decline in almost a decade. The VIX, which typically falls as stocks climb, spiked to 18.43 intraday before settling at 15.81, below the prior close of 16.50. One investor bought 120,000 SPDR S&P 500 ETF (SPY) 775-strike calls for about $40 million in premium; the position was worth roughly $63 million by Wednesday midday.

UBS sees the S&P 500 ending the year at 8,100, about 5 percent above Wednesday's close, betting the rally broadens beyond AI mega-caps. The equal-weight S&P 500 has recorded 12 all-time highs, evidence the advance is widening.

Simplex Trading's Jason Coogan described the past two sessions as "one-way buying," a sharp reversal from July, when investors loaded up on puts to hedge against a tech-led selloff. The CBOE's total put-call ratio averaged 0.79 in August, down from 0.93 in July, and touched 0.58 on Aug. 4, the lowest since 2011.

The surge in call demand has kept implied volatility elevated even as the index climbs. "The S&P 500 can move 2 percent in a single day, so volatility naturally gets pushed higher," said Max Grinacoff, a strategist at UBS. Strong demand for upside calls is a key reason implied volatility has stayed firm while spot prices rise, Sandhu added.

Goldman Sachs sees the position rebuild as more than sentiment. Lee Coppersmith, a liquidity strategist at the firm, said July was about resetting positions and "now investors are spending all of August playing catch-up." The Atlanta Fed's GDPNow model has lifted its third-quarter U.S. growth forecast to nearly 6 percent, while oil and interest-rate volatility have declined together, eroding the case for staying underweight.

Bull Case Broadens Beyond AI

Grinacoff said the S&P 500's strength is no longer confined to the biggest AI winners. The equal-weight index's 12 record closes show participation widening, with earnings growth running at levels previously seen only after major market troughs. Citadel Securities' Scott Rubner wrote Aug. 3 that companies "continue to beat already-high expectations," shifting the market from a flow-driven to an earnings-led regime.

Korea Seen as Cost-Effective AI Play

Goldman also flagged South Korea as one of the most attractive catch-up opportunities. The KOSPI trades at a forward price-to-earnings ratio of about 4.7 times, the lowest since 2001, while return on equity holds near 25 percent. With DRAM prices expected to sustain double-digit month-over-month gains and high-bandwidth memory demand strong, Goldman called the Korean market the most direct, cost-effective way to gain exposure to the AI hardware recovery.

The record call buying has left the market vulnerable to a sharp reversal if momentum stalls. Michael Kramer of Mott Capital Management warned that technical indicators have entered overbought territory, with the S&P 500 swinging from below its lower Bollinger Band to above the upper band in days. If the index fails to break resistance near 7,800, hedging-driven selling could resurface, erasing gains built on the options-fueled rally.

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