(Bloomberg) -- There’s a frenzy-like quality to the rally on Wall Street right now that has many drawing comparisons to the stocks-only-go-up mania of the early days of the pandemic. All major gauges are at or near record highs, fifty-seven stocks in the Nasdaq Composite Index have gained more than 150% already this year, and meme stocks are suddenly, and seemingly randomly, popping once again.

But one key ingredient is missing: Investors aren’t buying derivative contracts that’d give them a shot at a big payday if stocks keep surging. And that lack of demand for call options, as the contracts are known, indicates that beneath the surface there’s a sense among those on Wall Street and in day-trading circles that, unlike the go-go days of 2020, the best of this rally is just about over.

“In the past, when we’ve reached this FOMO cycle, you also saw that in call demand,”  Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, told Bloomberg TV. In Wall Street parlance, call options are a bet on the “right tail” of market charts. “We don’t see that chase to the right tail.”

The loss of exuberance underscores the shifting macroeconomic landscape that has traders preparing for less of a blistering rally and more of a gradual slog higher. At the start of the year, two pillars propped up stocks: robust corporate earnings and hopes for multiple interest rate cuts in 2024. 

Now, the market is pricing in at most a single cut in September at the earliest, with some Wall Street economists warning the Federal Reserve could keep rates elevated for the remainder of the year. It’s a long way from the near-zero interest rates and quantitative easing of four years ago.

The latest earnings reports have failed to stoke the kind of risk-taking on display in March. Companies posted nearly 8% year-over-year earnings per share growth — just shy of last quarter’s expansion — led by blockbuster reports from the likes of Nvidia Corp. and Microsoft Corp. 

Overall, results were good, just “not so out of this world great that you want to buy calls all the time,” said Scott Nations, president of Nations Indexes.

His firm’s CallDex index — which measures the cost of one-month, out-of-the-money call options tracking the S&P 500 — last week neared its lowest level in a year. That reading signals little willingness to pay for near-term contracts that pay off should stocks fly higher. 

But while options traders aren’t preparing for more gains, investors still don’t seem ready to let go of the hope. A poll by the National Association of Active Investment Managers shows that equity exposure jumped to more than 94% from 60% in late April. Notably, the upped allocations remain 10% below the recent March highs. 

Options markets also signal little fear of a potential selloff. The Cboe Volatility Index has posted some of its most meager readings since before the pandemic in the past week, as demand for puts protecting against broad market slumps remains muted. 

The growth of option-selling funds also is creating favorable dynamics for further gains with potential buyers for any big selloff. 

“We have index dealers long $7.8B worth of gamma per every 1% move,” Scott Rubner, Goldman Sachs Group Inc.’s global markets division managing director and tactical specialist, wrote in a note. “This feature will help mute a larger potential drawdown.” 

Less risk-taking does not necessarily mean stocks are due for a pullback, according to Brandon Yarckin, chief operating officer at Universa Investments LP. He said that sentiment can serve as a contrarian indicator: Overtly-bullish positioning, like that seen in March, can give way to pullbacks, like the one seen in April. A touch of trader restraint could be a good signal for stocks.

“We haven’t really gotten to that extreme bullishness level yet that would typically be associated with the end of a rally,” Yarckin said. “We would take that as just more evidence that the market has a bit more legs to it.”

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