As the S&P 500 sells off, traders eye key 'risk pivot' level
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- The S&P 500 is under pressure as crude oil rallies, bonds sell off, and Big Tech stocks drop after earnings, with the 10-year Treasury yield touching 4.7% — the highest level since January 2025.
- Market makers were likely 'long gamma' for at least a month leading up to this week, with the biggest positions concentrated around the 7,500 level in the S&P 500, keeping the index within a roughly 200-point range since mid-May.
- The gamma 'flipping point' for the S&P 500 sits at 7,500; if the index drops below that, market makers shift from buying dips to selling to cover deltas, potentially amplifying downward moves instead of cushioning them.
- Brendan Herbert, Barchart's options product manager, said 'we are in a negative gamma regime,' warning that dealers selling to cover deltas could 'in theory make a downward move more intense.'
- If the State Street SPDR S&P 500 ETF Trust (SPY) falls below $740 — where dealers have the most gamma exposure — the risk of a big sell-off heightens, per the Barchart volatility model.
- Brent Kochuba, founder of SpotGamma, noted there is still a 'fairly light amount of positive gamma' through the 7,300 level and said he is adding to short-dated, out-of-the-money put 'flies' with bearish directional bias.
Why it matters: The 7,500 level isn't just a price — it's a behavioral switch for market makers. With the 10-year Treasury yield already at 4.7% (its highest since January 2025) and Big Tech selling off after earnings, a break below SPY's $740 gamma concentration zone could transform orderly positioning into a self-reinforcing decline, especially when crude is rallying and bonds are already under pressure.
