Somebody asked me why the market was rallying.
There is no reason, at least not the kind people are hunting for.
I can tell you exactly what happened, and it has nothing to do with anybody deciding a company was worth owning.
Traders were buying calls in Meta.
By midday, Meta had traded 368,000 calls against 118,000 puts. A hundred thousand of those calls went off at the ask or above, which means the buyer paid up to get filled and did not care about the price. Nvidia traded 840,000 calls over the same stretch.
What that does
When you buy a call, somebody has to sell it to you, and that somebody is a market maker.
Now the market maker is short a call, which means they are short upside. If the stock rips, they lose. So they buy stock to cover themselves.
The market maker does not want the stock and has no view on the company. They are hedging an obligation they did not choose to take on, and the only way to do that is to go into the market and buy shares.
Multiply that by a hundred thousand contracts on the offer and you get a bid under Meta that has nothing to do with Meta.
Nobody woke up thinking 595 was the greatest price they had ever seen. The market maker bought it because the math made them.
Why this matters more than it used to
Because that tail is now big enough to wag the entire dog.
Zero DTE contracts, meaning options that expire the same day they are traded, did not exist in size a few years ago. Daily expirations are now spreading into products that never had them, and every one of those adds another place where option flow forces somebody to buy or sell the underlying.
If your framework for markets was built before daily expirations existed, it was built on incomplete information. The derivatives marketplace was not in it. Your textbook might mention Black-Scholes, which is fine, and it will not tell you a thing about how the market you are trading today gets moved around.
What to do with it
Stop asking why the market went up.
The question doesn’t have the kind of answer you want, and hunting for one sends you looking at earnings, headlines, and Fed speeches while the real driver sits on the options statistics page of whatever platform you already pay for.
Pull up the biggest names in the index and look at call volume against put volume. Then look at how many of those calls printed at the ask.
When one side is enormous, and it is trading on the offer, somebody is being forced to hedge, and that hedging is your rally.
You are looking at plumbing, not conviction. Knowing the difference is what stops you from buying a move that unwinds the moment the flow does.
I go through the option statistics live every session and show exactly what I am looking at on the screen. Tomorrow at noon Eastern, I am doing a longer version of that, walking through how I read the flow before I put on a position and what the numbers have to say before I execute the trade.
And if that’s not a good enough reason to be there, one lucky attendee will walk away with $2,000.
To your success,
Don Kaufman
