The S&P 500 options market just had its most chaotic day in recent memory. On May 7, traders pushed $2.6 trillion in notional call option volume through the system, a single-day record that forced dealers into a frantic hedging spiral.
Call options made up roughly 60% of all trading activity that day. The result was a textbook gamma squeeze, where the very act of hedging amplified the rally it was supposed to protect against.
How a gamma squeeze actually works
When traders buy call options in massive quantities, the dealers on the other side of those trades (firms like Goldman Sachs and Morgan Stanley) end up with what’s called negative gamma exposure. In English: every time the market ticks higher, these dealers need to buy more of the underlying asset to stay hedged.
The estimated net short gamma exposure during this event hit $7.5 billion. That’s a lot of forced buying pressure from institutions that aren’t making a directional bet. They’re just trying not to blow up.
