By Joseph Adinolfi
'FOMO' may be driving investors to pile into 'out-of-the-money' call options
Investors are bullish on stocks.
By one measure, investors haven't been this bulled up on stocks since the heady days of the original meme-stock frenzy back in 2021.
On Monday, strategists from Cboe Global Markets shared a chart with MarketWatch showing that investors have been aggressively piling into &#34;out-of-the-money&#34; call options. The surge has coincided with a surge in options trading by retail investors, according to data from Citadel Securities.
A call option gives the holder the opportunity, but not the obligation, to buy a given stock at a stated price - known as the strike price. An &#34;out of the money&#34; call option has a strike price higher than where the underlying stock is currently trading. They tend to be cheaper than &#34;at the money&#34; options, while offering investors the chance of a greater return if the bet pans out. An &#34;at the money&#34; option has a strike price right around where the underlying is currently trading.
As a result, the share of the top 100 stocks on the S&amp;P 500 with an inverted three-month call skew has surged past 20%, reaching its highest level since early 2021, when the rise of original meme stocks like GameStop and AMC helped inspire a frenzy of options trading among investors still stuck at home during the COVID-19 pandemic.
What's skew?
The options market was created as a tool for investors looking to protect their portfolios from drawdowns. As a result, put options, which help to offset losses, typically trade at a premium to similar call options. The same is true for so-called &#34;at the money options.&#34; They typically trade at a premium to &#34;out of the money&#34; options, since the further away from the money an option is, the less likely it is to deliver a payoff.
When demand for &#34;out of the money&#34; calls is much stronger than demand for &#34;at the money&#34; calls, the so-called &#34;call skew&#34; tends to invert. Options-market experts have said this is a sign that &#34;FOMO&#34; might be driving investors to pile into trades that have recently performed well. According to SpotGamma, much of this crowding has occurred in options tied to hot semiconductor names.
See: The options market is flashing an ominous sign about Nvidia's looming earnings
When sentiment reaches extremes, it can sometimes signal that the market might be reaching a tipping point. A crowded trade could be about to slam into reverse.
U.S. stocks looked set to open lower on Tuesday. If the S&amp;P 500 SPX finishes lower, it will mark a third-straight day in the red - the longest losing streak since March.
-Joseph Adinolfi
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(END) Dow Jones Newswires
05-19-26 0859ET

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CBOE

Investors are showing significant bullish sentiment, reminiscent of the 2021 meme-stock frenzy, as they increasingly buy 'out-of-the-money' call options. A recent chart from Cboe Global Markets indicates that over 20% of the top 100 S&P 500 stocks have an inverted three-month call skew, suggesting heightened demand for these options. This trend, driven by 'FOMO', may signal a potential market tipping point, especially as U.S. stocks are poised to open lower, marking a possible third consecutive day of losses.

- Investors are showing strong bullish sentiment, with a notable increase in "out-of-the-money" call options, reminiscent of the 2021 meme-stock craze.  
- This surge in options trading, particularly among retail investors, has led to a significant inversion in call skew, indicating strong demand for these riskier bets.  
- If market sentiment peaks, it may suggest a potential reversal in the current trend as U.S. stocks face a third consecutive day of losses.

Dow Jones

S&P 500

Cboe Global Markets

iShares Core S&P 500

SPDR S&P 500

VG S&P 500

GameStop

AMC ENT

NVIDIA

GAMESTOP CORPORATION C/WTS (TO PUR COM) 30/10/2026

NVIDIA Corporation

Investors haven't been this bullish since the peak of the 2021 meme-stock frenzy, according to this chart