The "shock absorber" in US stocks disappears: After options expiration, will the AI trading pullback spread to the entire market?

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With the July options expiration (OPEX) concluded, the positive gamma protection layer that had been maintaining stability in the U.S. stock market has largely dissipated. This means that AI-related trading corrections previously confined to the semiconductor sector now face the risk of spreading to the broader market.

Last week, lower-than-expected inflation data, strong bank earnings, better-than-expected retail sales, and positive statements on semiconductor demand from ASML and TSMC all provided a series of supports for the market. However, on Friday, news of the domestic AI model Kimi-3 release triggered a global decline in chip stocks, with the S&P 500 coming under pressure that day. Analytical firm SpotGamma noted that overall market stability last week—including Friday morning’s rebound—was largely reliant on the positive gamma mechanism, with options market makers counteracting price fluctuations through contrarian trading.

Now that July OPEX has ended, this "shock absorber" has basically failed. Against this backdrop, this week’s earnings season will become the core driver of the market, with performance of tech giants such as Alphabet (Google) and Tesla (TSLA) to be tested by the market in a more volatile environment.

Positive Gamma Declines, Market Buffer Withdraws

According to SpotGamma’s Synthetic OI Model, after July OPEX, market makers’ gamma exposure shifted significantly downward. In the gamma exposure curve released by the firm, the purple line represents total gamma before Friday’s expiration, while the yellow line shows gamma after options expiration—the gap between the two clearly illustrates the significant reduction in the market’s protection layer.

In a positive gamma environment, options market makers tend to act counter to the trend—buying when the market falls, selling when it rises—creating a natural mean-reversion force that suppresses large price swings. Once this mechanism weakens, the market’s response to directional capital flows becomes more sensitive, and the amplitude of price volatility may increase accordingly.

SpotGamma points out that the pre- and post-OPEX structure raises a central question: Will the reduction in positive gamma cause the declines previously limited to the semiconductor sector to eventually spread to the broader market?

Semiconductors Under Pressure, Sector Rotation Maintains S&P 500 Resilience

Over the past month, internal sector rotation in the market has quietly unfolded.

Traders have continued to withdraw from the semiconductor sector, shifting to "Magnificent 7", software, and healthcare sectors. This trend has dragged the semiconductor ETF (SMH) down to about 20% below its all-time high.

However, the boost from capital inflows to other sectors has enabled the S&P 500 to demonstrate strong overall resilience. This internal differentiation—some sectors falling, others rising—combined with positive gamma, has let the broader market maintain stability.

SpotGamma has previously conducted in-depth analysis on the growing volatility divergence between the S&P 500 and Nasdaq.

From both realized and implied volatility perspectives, the S&P 500 currently has a stronger ability to absorb internal index stock divergences. However, the firm also warns that the current dispersion indicator is at an extreme level, meaning upcoming catalysts could trigger an extraordinary surge in volatility.

Earnings Season Takes Over, Key Levels Decide Outcome

The macro calendar is relatively quiet in the coming week, so market focus will turn entirely to earnings season. SpotGamma uses the at-the-money straddle options for the first expiration date to measure implied earnings volatility and estimate market reactions to earnings events.

This Wednesday, Google and Tesla from the Magnificent 7 will report earnings, with both implied volatility figures around 6%. In addition, multiple semiconductor and software companies will report results this week, including Texas Instruments (implied volatility 9%), Intel (13%), and ServiceNow (11%).

SpotGamma notes that single stock implied volatility among leading stocks remains high. Given the sharp drop in positive gamma at the index level post-OPEX, the potential for earnings reactions to transmit to the broader market has risen significantly.

For key technical levels on the S&P 500 index, resistance is at 7,500, 7,520, and 7,600; 7,480 is the bull-bear dividing line (below is bearish, above is bullish); support is at 7,480 and 7,400.

Risk Warning and DisclaimerThe market has risks, so investors should be cautious. This article does not constitute personalized investment advice and does not take into account individual users’ specific investment goals, financial situation, or needs. Users should consider whether any opinions, views, or conclusions herein suit their particular circumstances. Investments based on this are at your own risk. ```