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Options Traders Keep “Opting” for Even Higher Stock Market Prices

And this continued bullish behavior speaks volumes about the trend

by Bob Stokes
Updated: September 01, 2020

What a rally!

After a swift and scary ride downward, the DJIA has climbed from a low of 18,213 on March 23 to near-record high territory.

Even so, many investors are still bullish, and they're backing up their conviction with a great enthusiasm for call options, which are bets on higher prices. (By contrast, as you probably know, put options are placed when market participants expect lower prices.)

This enthusiasm for call options has been on display for at least a couple of months now.

Let's go back to these two charts and commentary from our July Elliott Wave Financial Forecast:

CallOptionsCharts

[Looking at the chart on the left], the Dow declined over 38% to March 23, the fastest decline from an all-time high on record. The week of June 12, small trader call buying surged... At 52% of volume, the percentage of small trader call buying equaled the record of April 2000, which was the forefront of a 2½-year bear market. In dollar terms, the speculation this year is far higher than it was in 2000. The chart on the right shows that the total number of small trader purchases of opening call options surged to 14.6 million contracts the week of June 12, more than nine times that of March 2000.

Small traders were not the only ones feverishly purchasing call options. During the same time frame, at just over 40%, the percentage of large-trader call-buying was the highest since March 2000.

Fast forward to an August 29 Marketwatch article headlined "Options bets that the stock market will continue to soar have exploded to dot-com bubble levels." Here's a quote:

Wall Street bets for further gains are around their highest levels since the dot-com bubble.

[The] appetite for calls, particularly among individual investors, has boomed.

So, it's notable that the big bets on call options have been remarkably persistent. It's what you could easily call "an extreme."

Yes, there's a chance that this "extreme" could become more extreme.

Yet, you are encouraged to learn what our analysts are saying about the stock market's price pattern.

Your portfolio may thank you later.

Learn how to get instant and risk-free access to our market forecast by following the link below.

The Market Can Change “Character” on a Dime – Are You Prepared?

Everyone watched the Dow Industrials in February and March of this year: Prices tanked strongly and swiftly. It was enough to make an unprepared investor's head spin.

Put another way, the character of the market dramatically changed.

Then came another change -- the remarkable rally from the March low -- which brought prices back to record-high territory.

Are you ready for the next change?

Perhaps you could benefit from our Elliott wave experts' stock market insights -- right now.

Follow the link below to get started with our 30-day, risk-free trial.

EXCLUSIVE

German Stocks: “… on the brink of a very dramatic decline”

The strong recent decline in Germany's DAX has many investors worried -- after all, the DAX is Europe's equivalent of the DJIA. Now see how a simple Elliott wave price formation guideline -- first discovered by R.N. Elliott almost 100 years ago -- warned of the DAX's bearish opportunity as early as October 14. Our European Short Term Update editor explains.

What We See in the Stock Market

On Friday October 23rd, The Short Term Update noted the recent "lower lows and lower highs" - and told subscribers to keep an eye on 28,040 in the Dow, saying a break could come "very early next week." See the chart and forecast for yourself.

What This Survey Reveals About Investor Sentiment

Many retail and professional investors remain bullish on the stock market -- even after a multi-month rally. Get insights into a recent investor survey -- plus, see a chart which shows how the current optimism matches up with similar levels of optimism in the past.