Wall Street continues to chase stocks higher, with markets posting a historic surge in U.S. options trading volume, a sign of exceptionally high investor participation and risk appetite despite mounting concerns over valuations.
On Oct. 10, total U.S. options volume soared to a record 108 million contracts in a single day, easily surpassing April’s “Liberation Day” peak, according to The Kobeissi Letter.
Call options, which give traders the right but not the obligation to buy a stock at a predetermined price, climbed to a record 60.98 million contracts, marking a new all-time high. Put options, which allow traders to profit from market declines, reached 47.16 million contracts, the second-highest level on record.
The surge underscores a tug-of-war between bullish and bearish sentiment, with both sides wagering aggressively. The combined activity far exceeds the 2021 “meme-stock” mania, when total daily option volumes peaked near 60 million contracts.
While option activity alone doesn’t dictate market direction, the simultaneous surge in both calls and puts signals heightened uncertainty — investors are bracing for significant swings in either direction.
The fact that today’s speculative fervor outpaces the post-pandemic stimulus boom serves as both a testament to market enthusiasm and a potential warning sign for valuations.
Markets may be too comfortable with risk
U.S. stocks have climbed to record highs despite mounting tariff pressures, geopolitical uncertainty, and a widening fiscal deficit, prompting the International Monetary Fund (IMF) to warn that investors may have grown too complacent about risk.
Much of that confidence appears rooted in expectations that global central banks will continue to ease monetary policy, with the U.S. Federal Reserve following suit in September.
According to recent data, central banks around the world have cut interest rates 168 times this year, and markets anticipate further reductions in the months ahead.
However, the IMF cautioned that “beneath the calm surface, the ground is shifting in several parts of the financial system, giving rise to vulnerabilities.”
Against this backdrop of “rich valuations,” strategists at Goldman Sachs advised investors to maintain diversification, particularly by avoiding excessive concentration in artificial intelligence-related stocks.
However, not everyone is convinced that excessive valuations are the problem in today’s market climate, given the excitement and capital expenditures around AI and emerging technologies.
CFRA Research strategist Sam Stovall noted that stock valuations appear expensive only when viewed over multiple decades. However, when measured against the past five years, they look far more balanced.
“Over the past 20 years, the S&P 500 is trading at roughly a 40% premium to its long-term average on forward estimates,” Stovall noted, adding that the premium has shrunk to single digits over the past five years as big tech dominated.
Your email address will not be published. Required fields are markedmarked