Options traders are aggressively betting on further gains in the Nasdaq 100, driving up the cost of bullish call options to their highest premium since 2007. This bullish sentiment is occurring even as the index has already seen substantial growth, signaling extreme optimism among investors.
This surge in options activity is reminiscent of past periods of market exuberance, particularly given the backdrop of an AI-driven stock rally. The buying of bullish call options is emerging as another sign that the stock market might be getting overheated. For instance, the S&P 500 recently completed its eighth consecutive week of gains, fueled by persistent enthusiasm for artificial intelligence-linked trades.
Several factors are contributing to this bullish options spree. Micron Technology Inc.'s strong forecast, for example, recently reinforced confidence in AI-related chip demand, causing its shares to surge 17% in premarket trading and boosting Nasdaq 100 futures by 2.1%. However, there are growing concerns about the sustainability of this AI rally, with some drawing comparisons to the dot-com bubble of 1999 and questioning whether it's a transient fad rather than a lasting trend. The cost to fund US equity positions, particularly in the S&P 500, is also rising due to the AI rally and growth in leveraged ETFs.
