Just like a replay of the 1990s, FOMO overwhelms everything as US stock options traders go on a frenzy.

```

At a time when investors should be worrying about tariffs, growth, and changes in Federal Reserve policy, their greatest fear is actually missing out on further gains in the stock market.

Options data shows that as U.S. stocks repeatedly hit new highs, traders are flocking to call options with near-record enthusiasm, and the gap between call and put option volumes in the single-stock options market has reached its highest level in about four years.

The Barclays Equities Frenzy Indicator shows sustained bullish sentiment among retail investors, with its one-month moving average at about 14.3%, nearly three standard deviations above the long-term average. This frenzy-like trading environment reminds analysts of "late-cycle over-optimism," according to BNP Paribas head of U.S. equity and derivatives strategy Greg Boutle, who says the current environment "is starting to feel a bit like the late 1990s."

Historical data shows that once a significant proportion of stocks begin to show signs of a frenzy, it usually signals reduced future returns. Barclays analysis shows that high levels of frenzy have historically preceded pauses in market momentum, but analysts also warn that, as the lesson from the late 1990s shows, even bubbles can last much longer than expected.

Options Market Indicators Show Extreme Optimism

The trading frenzy for call options is driving unusual moves in key options market indicators.

The S&P 500's rally has pushed its one-month implied volatility down to a near-record low of 6.7%. However, at the same time, the Cboe S&P 500 Constituent Volatility Index, which measures expectations of individual-stock volatility, has risen to its highest level in more than five months.

In addition, the "skew" index, which measures market demand for downside protection versus upside speculation, has also reversed. Worries about missing the rally have overwhelmed the usual concerns about falling stock prices. According to Barclays head of U.S. equity derivatives research Stefano Pascale, the proportion of stocks with negative skew has surged sharply in recent months, "which is a classic sign of frenzy."

The current trading environment is reminiscent of historical periods of speculative peaks. BNP Paribas' Boutle believes this feverish trading environment is reminiscent of "late-cycle boom" periods:

"The environment we are in is starting to feel a bit like the late 1990s."

Barclays’ “Equity Frenzy Index” supports this view. This indicator measures sentiment intensity based on derivative flows, and its one-month moving average is currently around 14.3%, nearly three standard deviations above the long-term average, signaling sustained bullish sentiment among retail investors.

A “Virtuous Cycle” Led by Tech Stocks

Investors’ optimism is largely focused on a handful of high-flying stocks that have been driving this year’s market gains. Chris Murphy, co-head of derivatives strategy at Susquehanna Financial Group, said:

"Investor demand for single-stock call options has been extremely strong, especially in AI, semiconductors, and metals."

Data shows the tech-heavy Nasdaq Composite is up around 19% this year, while the S&P 500 has gained 15%. AI-related stocks, such as Nvidia and Broadcom, are up about 38% and 45%, respectively. As the market rebounded strongly from a tariff-driven pullback in April, investors have increased their allocations more aggressively. Strategists say that some latecomers are using options to make up for missed upside.

This strong bullish flow can also trigger a “virtuous cycle”: investors buy call options, and the dealers selling these contracts have to hedge their risk by buying the underlying stocks as prices rise, which in turn pushes those prices even higher. Barclays’ Pascale said:

"We’ve definitely seen a lot of that, especially in AI-related stocks."

Risks Behind the Frenzy: Returns May Weaken

Despite high market sentiment, history shows that such frenzies are often a sign of weaker future returns. Barclays’ analysis shows that once too many stocks show signs of frenzy, it usually signals reduced returns ahead. High levels of frenzy have historically often heralded a pause in market momentum.

The Barclays frenzy index in particular notes that once a stock displays these signals for several consecutive sessions, its subsequent average performance tends to be negative. Pascale said:

"If you start to see over-stretched positions and evidence of frenzy...that’s kind of a bad sign."

However, no one can accurately predict how long such a situation will last, leaving investors in a dilemma. BNP Paribas’ Boutle said:

"One of the lessons from the late 1990s is that even if you think it’s a bubble...these trends can run farther and faster than you think, and getting out or shorting too early can be very painful as well."

This forces investors to balance between chasing the rally and guarding against a sudden reversal in sentiment. Boutle said:

"At the moment, when we talk with clients, we’re talking about hedging upside risk as often as we’re talking about hedging downside risk."

Risk Warning and DisclaimerThe market involves risks, and investments require caution. This article does not constitute personal investment advice and does not take into account the individual investment objectives, financial situations, or needs of any particular user. Users should consider whether any opinions, viewpoints, or conclusions in this article are appropriate for their own circumstances. Investing accordingly is at your own risk. ```