The signs of investor exuberance are too many to list, but here Bloomberg points out soaring option volume as a sign of excessive optimism. The volume of options has soared to levels where the underlying shares each option contract controls are now almost equal to the total shares traded in the market.
Bloomberg’s Joanna Ossinger reports:
A frenzy of bullish bets on the biggest U.S. tech names is captivating Wall Street and powering equities to all-time highs. It’s also sending waves through options markets.
Volumes for contracts tied to single stocks have surged by 77% in the past six weeks to fresh records, according to Goldman Sachs Group Inc. The growth has been so staggering that trading in the derivatives by notional value is almost on par with volumes in the underlying shares themselves, the firm calculates.
Spurring the growth are bullish wagers on Tesla Inc., as well as mega caps that wield heft in the S&P 500 Index unseen for 20 years. Think Amazon.com Inc., Apple Inc., Alphabet Inc. and Microsoft Corp.
“Call buying has dominated this rise in activity, pushing call-skew on single stocks to one-year highs,” strategists Vishal Vivek and John Marshall wrote in a note Wednesday. Call options are contracts that allow investors to buy the underlying security at a fixed price, while call skew represents the premium of calls over comparable puts.