"Three months of 'span' gained in four days: How urgent is Wall Street's FOMO?"

Author: Huo Huo

After the market closed on August 4, Wall Street witnessed a significant acceleration that is hard to ignore. The S&P 500 index rose a cumulative 5.8% over the four trading days leading up to that day. According to Reuters, the options market also showed a bullish reading that has been rare for at least four years.

An increase does not equate to FOMO. What truly makes this round of market activity feel different is how quickly prices are moving upward and how the options market has priced both upside and downside risks simultaneously. On August 4, the closing data compiled by FRED also indicated that the stock market continued to rise, with the volatility index VIX, which measures expected volatility, also closing higher. Optimism did not suppress volatility.

Why Four Days Seem Longer Than Three Months

According to the daily closing data of the S&P Dow Jones index recorded by the Federal Reserve Bank of St. Louis's economic database FRED, the upward movement over these four days has slightly exceeded the point difference between the highest and lowest closing prices over the previous three months within the same closing metric.

Aligning the two periods side by side is not to equate the four-day gains with the highs and lows of three months as the same metric. The former indicates direction, while the latter indicates range. They fall on the same scale to clarify a change in trading rhythm, where the price fluctuations formed over months have been surpassed by the one-way movement of four trading days.

The price path itself cannot prove the psychology of every participant. What it can indicate is that the continuous upward closing over four trading days has rapidly elevated the entry prices for subsequent trades. Reuters summarized the phenomenon of traders chasing this round of increases as FOMO. The speed depicted in the chart is precisely the part that can be tested back against the price series.

How Rare This Is in Nearly a Decade

By rolling calculations based on the daily closing data of the S&P 500 over the past decade recorded by FRED, there are 2,504 four-trading-day windows. This round's increase of 5.7458% falls at the 99.32 percentile, landing in the sparse area at the far right of the chart.

According to FRED's recorded data, including this round, only 18 windows have had a four-day increase that is not lower than this level. Such a four-day magnitude is uncommon.

How Bullishness and Hedging Can Appear Simultaneously in Options

According to the S&P Dow Jones index and Chicago Board Options Exchange Cboe closing data recorded by FRED, the S&P 500 rose by 1.79%, while the VIX closed up by 4.04%. The two price movements in the same direction at least indicate that at the end of the trading day, the market did not completely lower the pricing for future volatility.

According to Reuters, the bullish skew in short-term options has reached a two-year high. Data from options data firm Trade Alert indicates that the average daily S&P 500 call/put ratio over the past month is 0.9, placing it in the most bullish range in at least four years.