FOMO Dominates US Stocks as S&P Skew Collapse Triggers Heavy Options Positioning
Miles Bennett
The S&P 500 moved more than four times what options had priced in, forcing market makers to chase the rally higher — fear has flipped from 'another drop' to 'missing the ride up,' and this self-reinforcing loop now hinges on whether fundamentals can catch up to sentiment.
Where did the fuel for this rally come from?
Goldman Sachs prime-brokerage data shows clients executed the largest concentrated sell-off of global tech stocks on record between July 24 and 29.
Semiconductor net positioning on Goldman's prime book turned negative for the year — more aggressively sold than at any point in 2025.
This means → extreme selling compressed the spring to its limit; short covering alone became the fuel for the squeeze that followed.
Why did the options market get it wrong by 4x?
Goldman's derivatives desk estimates that S&P 500 options priced in an expected move of just ±0.4% on the day; the index actually rose 1.79% — a miss of more than four times, entirely to the upside.
The last comparable deviation dates back to December 2016.
In plain terms = the options market was saying "nothing big today," and the market surged — everyone who had bet on low volatility was caught flat-footed.
Why do market makers have to buy more the higher it goes?
After the mismatch, market-maker gamma exposure — a measure of how sensitive their hedging needs are to price moves — went increasingly short on the upside.
In plain terms = every tick higher forces market makers to buy more stock to hedge, and that buying itself pushes prices higher still — a "rally → buy → rally again" loop.
On the downside, market makers accumulated positive gamma, creating a cushion. This reflects a deeply asymmetric position: an accelerator on the way up, a shock absorber on the way down.
What pricing gap did earnings season expose?
Bank of America data shows that for all six reported Mag 7 earnings, actual stock moves exceeded the options-implied expected move.
This means → it was not one surprise; options systematically under-priced volatility across the entire earnings season — strategies that sold volatility took losses across the board.
How did 'fear of falling' become 'fear of missing out'?
Call buying surged during the rally; the S&P 500 put/call ratio dropped sharply as investors pivoted from buying downside protection to chasing upside exposure.
Goldman options strategist Lee Coppersmith noted the S&P 500 put/call skew collapsed by the largest margin in nearly a decade over just two trading days.
The rally produced a rare combination: rising prices and rising implied volatility at the same time. This means → investors are buying calls aggressively rather than simply going long stock — the sentiment label has flipped from "afraid of another drop" to "afraid of missing the rally."
Can this loop keep spinning on its own?
Three structural features are now present simultaneously: market-maker short gamma, skew collapse, and call volume surge — together they form a self-reinforcing upward loop.
Put simply = the market is fueling itself: the more it rises, the more it buys; the more it buys, the more it rises — but the tank is running on sentiment, not fundamentals.
This reflects the key question ahead: whether incoming fundamental data can support the sharply elevated sentiment pricing — if earnings disappoint, the same mechanics will run in reverse.
Content is for reference only, not financial advice.