Bears Vanish From S&P 500 Options as Put-Call Ratio Baffles Pros

  • Traders are using calls more than any time since 2009
  • Average short interest in U.S. stocks at lowest since 2014

The post-election enthusiasm in the U.S. equity market is showing up in a curious way through options trading.  

As volatility measured by the VIX index dives to levels unseen in more than two years and the S&P 500 Index climbs to fresh records, the number of bearish bets changing hands relative to bullish ones has fallen to the lowest since 2009, according to data compiled by Bloomberg.

There have been an average of 1.4 puts for every S&P 500 call that traded in the past 50 days, a ratio that has occurred only in two other instances since 2000: when the stock market bottomed following the dot-com bubble burst and at the height of the financial crisis.

The abundance of calls might be due to investors seeking to get long stocks while avoiding paying record prices. With the low VIX, calls offer a relatively cheap way to stay in an extended rally, according to BNP Paribas SA equity and derivatives strategist Stewart Warther.

A different metric of sentiment also points to waning investor pessimism. The average short interest in U.S.-listed companies sits at 3.6 percent, the lowest since January 2014, according to exchange data compiled by Bloomberg. That’s a far cry from the 4.4 percent level reached last year, when short bets were at the highest since the financial crisis.

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