US stocks hitting new highs spark FOMO as institutions ramp up purchases of call options.

As US stocks continue to hit new all-time highs, investors’ primary concern has shifted from market declines to fear of missing out (FOMO). The S&P 500 has rallied roughly 23% since late March, driven by strong corporate earnings, easing inflation pressures, and market bets that the Federal Reserve will cut interest rates. Institutional funds are notably increasing allocations to call options. Castle Securities data shows that demand for call options on at least 170 S&P 500 constituents has outpaced demand for options betting on market volatility, with the gap hitting its highest level since at least 2016. Scott Rubner, head of stock and equity derivatives strategy at Castle Securities, said the chase for upside is approaching record highs. Steve Sosnick, chief strategist at Interactive Brokers, dubbed these trades "fear of missing out insurance"—investors reluctant to directly chase the underlying stock buy call options to retain exposure to potential gains. Meanwhile, market implied volatility remains low: the VIX index has fallen to its lowest level since January this year, and the equal-weighted VIX index has also hit a low since March 17, making downside protection relatively cheap. On Thursday, a large institutional investor spent $23.4 million on a massive put option combination, betting that if the S&P 500 plummets by 38% by December 18, the hedge position will generate huge returns. Sosnick noted that the current market sees both strong upside chasing and low-cost downside protection, allowing some institutions to participate in the rally via call options while establishing tail risk hedges at a low cost.