As the stock market continues climbing to unprecedented highs, investors' primary concern is no longer the potential for a downturn. Instead, it is the fear of missing out on further gains.

Following companies reporting the strongest quarterly earnings growth since the nation's post-pandemic recovery in 2021, stock traders have begun betting on continued upward momentum. Long-time optimists like strategist Ed Yardeni have raised their forecasts for the S&P 500.

This sentiment is reflected in the options market, where investors are reducing their purchases of downside protection and instead accumulating contracts that profit if the market continues its rally.

For at least 170 stocks in the S&P 500, a measure of demand for upside calls—which pay off if shares keep rising—has exceeded demand for options on markets staying flat by the widest margin since at least 2016, according to Citadel Securities. This marks a departure from the usual pattern.

"Demand for upside has accelerated toward record levels," wrote Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities, in a client note.

For some high-flying stocks, the surge in demand for bullish options reflects a rush to purchase what Steve Sosnick, chief strategist at Interactive Brokers, calls "FOMO Insurance."

Sosnick noted that some institutional investors are not fully convinced stocks will continue to rally, but buying options allows them to capture upside without committing their entire capital, as they would by purchasing stocks directly.

"If there's an institutional investor who may not want to chase these stocks at what they perceive to be high valuations and stretched momentum, but doesn't want to miss the rally, they're incentivized to buy calls," he said in a phone interview.

Yet others argue that this trend nonetheless signals stocks are likely to extend the run that has pushed the S&P 500 up around 23% since late March. The index closed up 0.7% Thursday at another record high as oil prices dipped and signs of easing US inflation pressures led traders to scale back bets on interest-rate hikes from the Federal Reserve.

"You're seeing calls get bid up, but it's being justified by the realized moves that we are seeing at the single stock and at an index level," said Christopher Jacobson, co-head of derivatives strategy at Susquehanna International Group.

Even so, the wave of volatility and bullish call buying could be nearing its end. Less volatility in individual stocks is expected for the coming 30 days, according to data from Cboe Global Markets Inc.

Meanwhile, the Cboe Volatility Index, which measures the expected gyrations of the S&P 500 over the next month, is at its lowest level since January. The VIX Equal Weight Index is at its lowest since March 17. Both are signs that it is a cheap time to hedge against a drop in stocks.

One institutional investor did just that on Thursday, spending $23.4 million on a series of bearish options trades that would pay huge returns if the S&P 500 falls 38% by December 18.

"If you're in a drought, nobody really wants to buy umbrellas," said Sosnick. "It's probably the best time to buy."