At the end of September, Barclays’ US equity analysts declared that they are currently “uncomfortably bullish” as the current “bull run in global equities is near the strongest in history,” but valuations are not universally high across the board. With this being the case, it looks as if markets could still have further to run, which is why they’re not ready to throw in the towel just yet as investors load up on SPX options which should go up if the bull market continues.

The report from Barclays went on to declare that “on most measures, the US stock market appears expensive...today’s US Shiller PE of 30x has been exceeded only twice in history: prior to the Great Depression of 1929 and the Tech Bubble of 2000” although this premium valuation does not “necessarily imply that a collapse is imminent.” Moreover, in other markets, "valuations are only near the trough levels of 2003" and "prospects for earnings are the most positive in nearly five years."

It seems as if Barclays' analysts' aren't the only market participants that believe the current rally is only just getting started.

Investors Road up on SPX Options

Over the weekend, Morgan Stanley's Chris Metli, executive director of the bank's Quantitative and Derivative Strategies (QDS), showed just how bullish investors have become as the market continues to push higher.

According to the QDS director, "Investors in the SPX options market have bought more delta in the last two weeks than at any point since at least 2007." Put simply, during the last two weeks investors have rushed to buy into the equity rally but not by buying stocks. Instead, they've been building positions via levered, upside calls -- a sign that investors believe there's no downside left for the market.

As a result of these flows, "in an up 5% move end users of SPX options (i.e. non-market makers) would be the longest equities since at least 2008… while they would be the least well protected in a down 5% move since at least 2008."

Such positioning is usually seen in the market's "blow off top" phase, the melt-up before a sudden, swift market correction.

Trying to pick the top before such a correction is all but impossible but QDS has some advice for investors and traders who don't want to miss out on the final stages of the rally, but who are also looking for protection:

"QDS suggests investors sell equities and rotate into long call options – in other words, stay long to participate in a blow off top, but don’t leave your left tail exposed."