S&P 500 gamma squeeze $2.6T sparks volatility risk for crypto

On May 7, the S&P 500 options market saw a record gamma squeeze as traders drove about $2.6T notional into call options. Calls made up roughly 60% of activity. Dealers were estimated to hold net short gamma of about $7.5B, so as the index rose they had to buy more underlying to hedge—mechanically amplifying the rally. The article frames the move as momentum-driven “semi-irrational chasing,” likening it to late-1990s tech behavior. It also notes a similar gamma squeeze in April when the S&P 500 broke above 6,500, suggesting elevated options positioning rather than a one-off event. A key concern is that this leverage/hedging dynamic can unwind around expiry or large position reductions, flipping from buying pressure to selling pressure and accelerating drawdowns. For crypto traders, the headline risk is tighter correlation between S&P 500 momentum and Bitcoin. When equities rise on options-driven flows, BTC often “catches a bid.” But the cost of protection can rise too: put prices may get more expensive, which can reduce the effectiveness of options-style hedges during sudden volatility spikes.