Are we skipping FOMO and going straight to Inverse Panic?
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Is the dot.com mania now the blueprint?
Options are starting to price rather extreme upside crash scenarios. This is on par with some of the most extreme situations we have seen during >30 years of trading. It is even so extreme that we dare to mention as a comparison the late 1999 options behavior. In late 99 / early 2000 upside was the main risk. Clients, institutions as well as retail, bought calls (and newly launched warrants) in panic fashion leaving market makers/structured and prop desks short upside convexity. These dealers had to chase deltas first, and options later, pushing upside call volatility higher and higher. We are not at 99/00 mania levels yet, but it is clear that the options markets are starting to show some sort of similar "inverse" panic.