Part 1: $39B Gamma Spike Fuels SPX Pin to 7000 – But Goldman Says Buy Puts to Hedge Downside Risk
Time to read those reports/2026 outlooks you stacked up in the corner of your desk (or your digital downloaded PDFs). I'll separate the post into Part 1/Part 2. This post will be mixed with some interesting charts collected from banks and media reports and some of my own views, with a dash of potential strategies to think about. So pour yourself some fine mulled wine, or eggnog, or leftover cranberry juice, sit back, and enjoy.
*Warning: A LOT of Greeks coming up.
Terminology check - Delta and Gamma
Before we start, let's get the terminology checked. Otherwise, jump to Chart analysis.
Delta (Δ): Measures how much an option's price changes with a $1 move in the underlying asset. For a long call, delta is positive (0 to +1). For a short call, it's negative (0 to -1).
Gamma (Γ): Measures the rate of change in delta per $1 move in the underlying. Long options have positive gamma; short options have negative gamma. So here you can understand gamma as the first derivative of delta.
Positive gamma --> since gamma measures the speed of delta change, and delta measures the price change of options (the value of the options) from underlying movements --> a positive gamma means your position benefits from volatility (how volatile the underlying price changes) --> faster, volatile movement of stock price increases the value of the options.
If dealers want long gamma only (they only want exposure from volatile price movement), and they don't want to guess the direction of price movement to affect the value of their position (aka, delta exposure), what can they do? --> make delta 0 (delta-neutral).
Delta-Hedging: Dealers aim to stay delta-neutral (no directional bias) by dynamically trading the underlying. Say buying a call option gives you 0.7 delta --> stock price moves 1 dollar, your call value increases 0.7 dollar. So staying delta-neutral requires the position's delta close to 0, so price movement upward or downward will not affect the value of your options position caused by delta. Therefore, theoretically, if we keep other Greeks the same, your options position will only increase in value when volatility increases, if you hold positive gamma (long gamma).
But the dynamics change when dealers are short gamma. Remember, short options will have negative gamma. Say shorting a call gives -0.4 delta and -0.2 gamma to the dealer --> the dealer delta-hedges by buying 0.4 shares of stock --> if the stock goes down, the call buyer's delta reduces to 0.2, so the dealer's delta goes to -0.2 --> since the dealer bought 0.4 shares to hedge, now he needs to sell 0.2 shares to maintain delta neutral --> therefore, dealers sell on price falls and buy on price rises.
Chart analysis - SPX zero gamma line shifts from 6750 to 6890 indicating leveled-up downside gamma risk and a shift to path-dependent neutral regime
Last Tuesday, aggregated dealer gamma hit a record +$39 billion per 1% SPX move—meaning dealers were extraordinarily long gamma, requiring massive hedging trades to stay delta neutral.
"The primary cause of Tuesday’s record gamma was a large SPX 1DTE (Wed 24-Dec expiry) iron condor sold by an end-user (strikes of 6885/6890/6920/6925) with ~80-100k contracts per leg." - BofA
Short iron condor = short gamma; therefore, for the dealer who bought it = long gamma.
Positive gamma at this scale implies strong market stabilization --> upward moves increase positions' delta and would force dealers to sell more SPX to reduce delta (since selling underlying has a negative delta of -1), pressing down the price, while downward moves reduce positions' delta and have them buying to increase delta, holding price from falling further.
In the chart (left-side chart in Figure 1) the gamma ($bn per 1% move) dipped from +$39bn to roughly $13bn after the trade expired, but still at a relatively high level (97th percentile over 1 year), providing a volatility cushion.
Now let's check the $S&P 500 Index (.SPX.US)$ gamma profile across spot levels for delta-hedgers (right-side chart in Figure 1). We can see gamma is highest at $7,000, indicating large positioning in the 7000 options (*note: data from 24-DEC-25) --> If SPX rallies toward the 7000 level, dealers' hedging could provide stability, meaning reduced downside risk and potential for smoother upward moves.
But check the grey vertical line around $6,750: gamma starts to turn negative, which means dealers hedge delta by selling when price drops and buying when price increases, amplifying price movements --> implication: SPX could drop sharply on negative catalysts, with gamma turning against stability below 6750.
Conclusion: The chart suggests a market biased toward stability on the upside (rallies to 7000) but fragile on the downside.
*Updates on SPX gamma dynamics - data from 29-DEC-2025, Tier1Alpha
Gamma exposure as of this Monday was sitting slightly above the grey line which separates positive/negative gamma, where Tier1Alpha views this as a "neutral" gamma environment.
In this neutral setup, the market's response becomes "path-dependent"—the next significant move (up or down) alters dealer hedging behavior dramatically. This creates a tipping point: small moves might not matter, but material ones reshape the environment.
The space between the lower Probable Volatility Bands (PV bands) of 6840 (the lower blue line) and the upper band at 6985 shows most "strikes in play" --> the market is range-bound absent a catalyst.
Downside hedging is relatively cheap
All the talk leads to one point --> downside is worth hedging.
$CBOE Volatility S&P 500 Index (.VIX.US)$ has been roughly 'flat' with thin trading volume for the past weeks. At the close of trading on Tuesday, VIX was slightly up 0.92% as major indexes stumbled on tech weakness and rising geopolitical tensions. For smaller accounts, SPY current IVP is only 2% --> options relatively cheap. I wrote in my previous post about Goldman Sachs' bearish strategy of buying puts into year-end and early 2026, focusing on downside protection and hedging against underpriced risks, particularly in a low-volatility environment. Extending on that, many tickers went through an exciting year and are currently sitting at low IV - $Alphabet-C (GOOG.US)$ IV 27.27%, IVP 4%; $NVIDIA (NVDA.US)$ IV 38.09%, IVP 9%; $Apple (AAPL.US)$ IV 23.46%, IVP 10%... So if you believe you're buying into a volatile year, options are sitting cheap.
Lastly, the Fed just released its latest meeting minutes. To be continued in Part 2...
This is not financial advice. Views are mine. If you like the content, feel free to smash that follow button and let's keep it an open discussion under the comments.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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Enjoy F1 (desperate Ferrari Fan), a chill walk. Share 1. My portfolio management with options 2. Other interesting stuff
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Xigeru : Are we talking about the current box range?
LukeHW OP Xigeru : within certian range yes, but once price breaks the support —> sharper, more volatile downward. current thin trading volume gives some deviation on the price range
Slay2dudes : ok
73409670 : Thanks buddy for this info!
PAA4MU : well written analysis