• Cboe's skew measure fell to its lowest since December 2024, signaling increased demand for call options relative to puts.
  • Traders are piling into bullish bets amid a post-FOMC rally and compression of macro volatility.
  • Some indicators still note high upside risk priced into options, suggesting potential for sharp moves.

A Shift in Sentiment

Options traders are increasingly positioning for further market gains, with the Cboe's skew measure dropping to its lowest level since December 2024 on Friday. The skew, which measures the cost of out-of-the-money puts relative to calls, has flattened as demand for upside bets outpaces downside protection. A lower skew indicates that call options are becoming more expensive relative to puts, a classic sign of bullish sentiment.

"The market is telling you that traders are confident in the upside," said one options strategist who asked not to be named. "We're seeing a significant shift toward call buying, not just in index options but also in single stocks." This trend comes as equities rally and macro volatility compresses, with investors growing more comfortable post-FOMC.

Broader Market Context

The bullish positioning aligns with broader equity strength heading into year-end. According to people familiar with the matter, hedgers are capitulating as confidence rises, further fueling the upward bias in options flows. However, some indicators still note that upside risk remains elevated, suggesting that while traders are bullish, the potential for sharp moves in either direction persists.

One market participant described the current environment as a "melt-up scenario," where fear of missing out drives aggressive call buying. Yet, the flattening skew also highlights a reduction in tail-risk hedging, which some analysts view as a cautionary signal. "We've seen this before," another strategist noted. "When everyone is on the same side of the boat, a small wobble can cause a significant splash."

Implications for Investors

For investors, the current options landscape offers both opportunity and risk. The increased demand for calls suggests that market participants expect continued gains, but the compressed skew could mean that protection is relatively cheap. As the year draws to a close, the question remains whether this bullishness will persist or if a sudden shift in sentiment will surprise the market.

Correction: An earlier version of this article incorrectly stated that the skew measure reached its lowest since 2019. The data has been updated to reflect the December 2024 low.