Investors are eagerly awaiting the next leg of leadership in the equity market, with AI-related earnings continuing to drive upside risks. While the exact leader remains uncertain between tech and broader equities, strategists at BofA Securities have identified an attractive exposure opportunity in SPX calls and call spreads.

According to BofA, outright volatility in the SPX is currently undervalued, with calls offering an attractive asymmetric risk-reward profile. In fact, analysis of ChatGPT-era rallies reveals that calls would have broken even in roughly two-thirds of cases, compared to a delta of around 35%. This suggests that selling some of the richness in call premiums could be a profitable strategy for investors.

To take advantage of this opportunity, BofA prefers the SPX September 7900 call, while we find a call spread more appealing. By selling the upside wing of the call spread, investors can reduce premium costs while still capturing potential gains in the market. The chart below shows the SPY 780/800 call spread, highlighting the attractive risk-reward profile of this strategy.