The market just logged the largest gamma squeeze I have ever seen.
The S&P 500 moved 300 points this week against a $120 expected move. That adds up to almost three standard deviations and the third consecutive weekly breach to the upside.
I have recorded expected moves in the SPX all the way back to 2017. Three consecutive breaches in the same direction is completely unheard of in my data.
Microsoft tells the story best. The stock opened the week at $370 with an $11 expected move and closed at $422 for a 4.74 sigma move.
In tonight’s video, I walk through the data driving the squeeze:
- The SPX traded 6 million option contracts today with calls slightly outnumbering puts. Institutions normally buy puts as hedges in this product, so this flip tells me retail is piling into call options.
- Every SPX strike below 7175 held over 100,000 contracts in open interest from yesterday’s close. Move out to Monday’s expiration and the biggest strike shows only 13,000 contracts.
- SPDRs added another 15 million contracts on top of the SPX’s 7 million for over 21 million combined. The QQQ kicked in another 8 million on the same day.
- Next week’s SPX expected move sits at $110, only 10% below this week’s $120. Volatility did not collapse during this rally, with the VIX finding a floor near 18.
I am not playing this rally on the long side. My opportunities right now are all on the short side.
Financials remain down 4% on the year while the private credit squeeze keeps building at the major banks. Home builders got swept up in the move despite bond market pressure, and crypto continues to lag the broader index.
I walk through exactly how this gamma feedback loop works and break down three specific short setups I am watching next week.
