As major U.S. stock indices continue to hit record highs, investors are aggressively removing hedges and buying call options to chase the rally. Demand for downside protection has fallen to its lowest level since April 2025, when then-U.S. President Trump made concessions on tariff policy. The options market typically measures investors' demand for hedging against the S&P 500 index by comparing the implied volatility of out-of-the-money put and call options, a metric known as 'skew'. When put option premiums decline relative to calls, it signals lower willingness to pay for hedging costs and weaker demand for downside protection. Bloomberg-compiled data shows that the skew of one-month S&P 500 put options relative to calls has fallen to its lowest level since April 2025. This indicates that traders are now more concerned about missing the rally than about portfolio drawdowns, with FOMO (Fear of Missing Out) sentiment clearly rising. This shift first appeared after the August 4 U.S. stock surge and has resurfaced this week. Mandy Xu, head of derivatives market intelligence at the Cboe, said investors last week sold hedges and shifted funds to upside call options to chase the market. Christopher Jacobson, co-head of derivatives strategy at Susquehanna International Group, noted that the skew metric showed a clear change from the prior week, with funds moving from downside protection puts to upside calls. Some investors who were previously underweight stocks are now increasing their upside exposure by buying calls. However, the low level of hedging demand also means that investors may be underprotected if the market suddenly reverses. When the chase for gains replaces risk awareness, the overconcentration of long positions itself could become a potential market risk.

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  • Source: PR Times
  • Category: News
  • Organizations: Susquehanna International Group