Bank of America's derivatives team believes that after a strong earnings season and easing fundamental concerns, the main question for US stocks in the next phase is no longer "whether they can continue to rise," but rather who will lead the rally. Given this still unclear sector leadership, broader index tools like the S&P 500 are more suitable for expressing a view on the overall upward trend of US stocks.
Even more interesting is the pricing of options. Since the launch of ChatGPT in November 2022, SPX35-delta call options with similar pricing levels have reached break-even in approximately 47% of the observation period; if only periods of S&P 500 gains are considered, this figure is approximately 67%. This indicates that the current low implied volatility makes the market's pricing of potential upside for US stocks relatively cheap. In other words, the options market has not fully priced in the potential upside in the future.
