How it rises or falls! Amid the frenzy of AI options in the US stock market as a "double-edged sword," Nvidia's earnings report may become a market turning point.
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US stocks continue to rise amid an AI-driven options frenzy, but highly concentrated positions are accumulating risk.
Market structure shows that around the May options expiry date, the technical forces supporting the rally may shift rapidly, and Nvidia’s earnings window could become a key point for the repricing of volatility.
The strong lead from semiconductors and large technology stocks has provided fundamental support for this round of rebound, while the catalytic effect of the options market has further amplified the uptrend. Surging demand for call options, increased hedging purchases by market makers, and a decline in realized volatility have formed a mutually reinforcing positive feedback loop, continuously attracting buying interest.
However, the fragility of this structure cannot be ignored. After options expiry, the market-stabilizing hedging flows from market makers will dissipate, while the expiration of VIX options and Nvidia’s earnings report arriving within days of each other creates a natural window for volatility to be repriced. Should AI momentum stall or oil prices rise substantially, the current position structure supporting the linear rally may quickly turn into a downward amplifier.
Options market fuels the rebound, market maker hedging suppresses volatility
The recent rise in US stocks has seen the options market play a critical role. According to a recent report from SpotGamma, market maker hedging activity should help suppress realized volatility ahead of the May options expiration (opex). Models from MenthorQ show the S&P 500’s net Gamma value is significantly positive, a structure that typically compresses intraday volatility.
Meanwhile, oil prices remain range-bound and volatility has failed to break higher, providing fundamental cover for this current rally. These factors, combined, have created a classic positive feedback loop of rising call option demand, passive hedging by market makers, and further declining volatility.
Extreme call buying in semiconductor options, market breadth sinks to abnormal lows
Concentration indicators are sending warning signals.
SpotGamma points out that call option buying activity in the semiconductor sector has reached extreme levels. Data cited by 22V Research reports that the Philadelphia Semiconductor Index RSI has climbed to highs not seen since March 2000, and notes that last Friday, the nominal traded amount of S&P 500 call options hit a record $2.6 trillion, with calls making up 60% of all options volume.
Market breadth is also a concern. Oppenheimer's equity derivatives department points out that over the past month, only about one-fifth of S&P 500 constituents have outperformed the index, indicating exceptionally narrow participation. The dispersion index has risen to its highest level in over a year, while implied correlation is near year-to-date lows, with no significant uptick in demand for tail risk. Citi’s latest report also notes that the VIX trades at a premium to internal market indicators, suggesting that unless oil prices and geopolitical pressures intensify, risk premium could be further compressed.
Nvidia earnings window could trigger volatility repricing
Timing is critical. Options expiration often removes market maker stabilizing hedging flows, especially in a call-dominated market environment. VIX options expiry and Nvidia earnings will take place days apart, creating a natural window for volatility repricing.
The current position structure supporting the linear rally before expiry may also amplify downside risk if AI momentum stalls or oil prices make another substantial move higher. This means that for investors betting on a continued uptrend, the window around Nvidia’s earnings is both a potential catalyst and a key moment to manage risk prudently.
Risk warning and disclaimerThe market involves risk, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the individual investment objectives, financial circumstances, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investment decisions based on this are at your own risk. ```