Four Million Call Options Later, People Still Think This Is a Normal Market

An eye-popping statistic.

ZeroHedge pointed out this morning that more than 4 million S&P call options were purchased in a single session yesterday, reportedly the highest level ever recorded, as the market blazed to new S&P 500 highs.

That’s an eye-popping statistic. More importantly, it’s another data point that reinforces something I’ve believed for years: this market is being driven less by genuine investment demand and more by outright gamblers exploiting market structure.

Zero Hedge commentary out this morning postulates that investors have rapidly shifted from defensive positioning to aggressively chasing stock market upside after a sharp July selloff, particularly in technology and AI stocks. It also notes that Goldman Sachs sees record-breaking demand for S&P 500 call options and a sharp drop in put/call skew, signaling strong bullish sentiment as investors rebuild exposure.

I’ve argued for a long time that equities have become increasingly disconnected from traditional price discovery. Instead of investors carefully weighing earnings, cash flows, economic growth, and valuation, prices are being pushed around by options flows, dealer gamma hedging, passive index inflows, volatility strategies, and algorithms chasing momentum.

The Permanent Distortion Theory

That’s not to say fundamentals don’t matter eventually. It’s that, in the short run, they seem to matter less than whether someone just bought another truckload of upside calls and then posted about it on Reddit.

When traders pile into calls at record levels, dealers who sold those contracts usually have to buy the underlying index to remain hedged. That buying pushes prices higher, which forces additional hedging, which creates even more buying. Suddenly CNBC is breathlessly talking about another “breakout,” financial Twitter is posting rocket ship emojis, Tom Lee is being referred to as “Korean Jesus” and everyone convinces themselves the market is discounting some brilliant economic future.

And the funny thing about gamma is that the same people celebrating it on the way up tend to develop selective amnesia on the way down. Gamma isn’t some magical force that only levitates stock prices forever. It works in both directions. If positioning flips and markets begin to fall, those same hedging flows can quickly become sellers instead of buyers. What looked like relentless support suddenly becomes relentless pressure. And that pressure isn’t traditional selling, it’s employing 100:1 leverage to place bets…meaning the snap back lower could be just as violent as the melt up we’ve seen the last few years.

That’s why I don’t look at a record day for call buying and think, “What an incredible show of investor confidence.” I think, “We’re adding even more fuel to a market that’s already become increasingly dependent on derivatives to maintain altitude.” There’s a big difference between people buying businesses because they’re attractive investments and people buying call options because they expect someone else’s hedging activity to push prices higher tomorrow.

Still think this market trades on fundamentals? How about this totally normal “investment”, buying $20 million in SpaceX calls assuming the stock of an unprofitable company that burned -$16 billion in FCF the last quarter…and already valued astronomically…could triple in a matter of days?

Layer passive investing on top of this nonsense, and the distortion only grows. Every paycheck flowing into index funds buys regardless of valuation. The ETF doesn’t ask whether earnings justify the price. It doesn’t care whether profit margins are sustainable, whether geopolitical risks are rising, or whether consumers are beginning to crack under the weight of years of inflation. It simply buys whatever already has the largest weighting, creating an almost self-reinforcing cycle that has very little to do with actual fundamental value.

Call me old-fashioned, but if you ask me, these aren’t real equity prices anymore. They’re prices heavily influenced by derivatives, systematic strategies, passive allocations, volatility targeting, and mechanical flows that often have very little to do with what businesses are actually worth. We’ve slowly replaced price discovery with flow discovery, and somehow everyone acts like that’s perfectly normal because the line keeps going up.

Shiller PE

Don’t be fooled by these violent rallies. Ask yourself what has fundamentally changed. Valuations are still ridiculous. The Iran War has not stopped. Other geopolitical risks (i.e. Russia/Ukraine, etc.) haven’t magically disappeared. The health of the American consumer remains questionable after years of elevated inflation, rising debt burdens, and depleted excess savings.

Even if interest rates ultimately settle around 3.5%, that’s still an entirely different world than the free-money era that justified paying absurd multiples for companies with more buzzwords than profits. None of those realities have disappeared simply because the S&P managed another melt-up fueled by options activity.

The best analogy remains a rubber band. Every mechanically driven squeeze stretches it a little further from where it probably belongs. Every options-fueled melt-up adds more tension. Every passive dollar blindly chasing yesterday’s winners pulls it tighter still. Eventually something gives. And when it does, the same mechanics that everyone credits for creating a seemingly unstoppable bull market become the accelerant behind an equally breathtaking decline.

QTR’s Disclaimer: Please read my full legal disclaimer on my About page here. This post represents my opinions only. In addition, please understand I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. Contributor posts and aggregated posts have been hand selected by me, have not been fact checked and are the opinions of their authors. They are either submitted to QTR by their author, reprinted under a Creative Commons license with my best effort to uphold what the license asks, or with the permission of the author. I cannot guarantee the accuracy of all facts and figures included in this article though I made my best effort to get them right. I have been wrong before and will be wrong again, and encourage you to always double check, do your own research and speak to a licensed financial professional.

This is not a recommendation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. I may or may not own names I write about and are watching. Sometimes I’m bullish without owning things, sometimes I’m bearish and do own things. Just assume my positions could be exactly the opposite of what you think they are just in case. If I’m long I could quickly be short and vice versa. I won’t update my positions.

As of May 20, 2026 I am attempting to no longer actively trade as much as I once did (read my story here). My goal is for investing/saving to be mostly done by recurring contributions mostly to sector ETFs and a few select equities, trusted third parties who oversee my accounts, and advisors. Such advisors or funds, through individual equities, options, index funds, mutual funds, ETFs, or other securities, may have positions in, exposure to, or holdings of names mentioned herein that I know nothing about. Basically, via index funds, ETFs and individual equities it is possible I could own, have exposure to, or not own anything at any point. As of the same date, May 20, 2026, in an attempt to lead a healthier lifestyle, I’ve also excluded myself from fantasy sports, sports betting, online and in-person casinos and prediction markets.

And all positions can change immediately as soon as I publish this, with or without notice and at any point I can be long, short or neutral on any position. You are on your own. Do not make decisions based on my blog. I exist on the fringe. If you see numbers and calculations of any sort, assume they are wrong and double check them. I failed Algebra in 8th grade and topped off my high school math accolades by getting a D- in remedial Calculus my senior year, before becoming an English major in college so I could bullshit my way through things easier.

The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. I edit after my posts are published because I’m impatient and lazy, so if you see a typo, check back in a half hour. Also, I just straight up get shit wrong a lot. I mention it twice because it’s that important.