By One Measure, Traders Are the Most Bullish on Stocks Since at Least 1997

It's not over.

Pedestrians walk past an American flag displayed outside of the New York Stock Exchange (NYSE) in New York, U.S.

Photographer: Michael Nagle/Bloomberg

This equity rally has legs.

At least that's the signal coming from the options market, where one metric suggests that traders haven't been this optimistic about what's to come in almost 20 years.

The price of call options that bet on a 10 percent rise in the S&P 500 Index are at the most expensive on record relative to at-the-money contracts in data going back to 1997, according to a note from Credit Suisse Group AG. And the optimism isn't just confined to the  index itself.

"We see call buying across the sectors and at the single stock level as well," the strategists, led by Mandy Xu, write. Here is the chart from their note.

Screen Shot 2016-12-12 at 11.43.17 AM

"The price of calls struck at 10 percent above the current price [of the S&P 500] has surged vs calls struck at the current price," said George Pearkes, analyst at Bespoke Investment Group. "Basically, that means people are buying tons of upside exposure," he added.

Stocks have rallied nearly six percent since the Nov. 8 presidential election as investors speculate Donald Trump will be enable to enact policies he campaigned on, including lower corporate taxes and fewer regulations. Even after the rally has taken benchmark indexes to a series of all-time highs, investors aren't betting the market's gotten ahead of itself.

Credit Suisse pointed to another measure that's signaling investor optimism: the firm's Fear Barometer slipped to a five-year low last week.

"This index basically says, how far down do I need to go to find a put that costs the same as a 3-month, 10 percent upside call," said Pravit Chintawongvanich, head of risk strategy at Macro Risk Advisors. "When calls are relatively expensive (like they are now), you don't have to go very far down to find a put of the same price. When calls are very cheap (as they were this summer) you have to go much further down to find an equivalently priced put," he said.

Of course, some measures aren't painting as rosy of a picture. The Chicago Board Options Exchange Volatility Index has jumped 7.5 percent since Dec. 7, despite the continued rally in the S&P 500.

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