The S&P 500 fell 1.45% to 7,390.42 as options analysts flagged that the index had dropped below a level they call a "risk pivot." Dealer positioning has flipped into a negative gamma regime, meaning market makers may now amplify swings rather than cushion them, raising the odds of a sharper sell-off.
The S&P 500 dropped 1.45% to 7,390.42, and options traders warned that the index had slipped below a threshold they call a "risk pivot" — a break that could clear the way for a steeper decline. Crude oil rallied and bonds sold off at the same time, with the 10-year Treasury yield touching 4.7%, its highest since January 2025.
What kept stocks in a range
For at least the past month, options dealers absorbed the swings. Evidence suggested these market makers were likely "long gamma" — they owned options that pay off with movement, so they bought stock when the market dipped and sold when it rose. That positioning helped hold the index within a 200-point range since mid-May, with the biggest concentrations of activity clustered near the 7,500 level.
The flip to negative gamma
That cushion has now weakened. Barchart's volatility model put the flipping point at 7,500, below which traders may no longer be able to count on consistent dip-buying.
When positive gamma turns negative, dealers stop smoothing moves and start chasing them. Herbert said that if the market drops, dealers would have to sell to cover deltas, which could in theory intensify the move, adding: "We are in a negative gamma regime."
Where the next line sits
SpotGamma's Brent Kochuba wrote Thursday that a "fairly light" amount of positive gamma remains through the 7,300 level, and that he would add short-dated, out-of-the-money put positions with a bearish bias. A deeper break would come if the SPDR S&P 500 ETF (SPY) fell below 740, where dealers hold the most gamma exposure and a large sell-off grows more likely. Even so, the index remains less than 3% off its record, still trading above last month's lows.
Source: CNBC
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