Market Turmoil Exacerbated By Record Gamma, Option “Pins”

As we showed recently, single stock open-interest has increased to all-time-high levels, which is why today’s expiry is important for stocks, especially for names with large open interest in at-the-money (ATM) 15-Jan options, because as Goldman notes, market makers delta-hedging their unusually large options portfolios are likely to be very active (see the odd report on Exxon from the WSJ which has crashed the stock just as call open interest exploded, leaving countless investors suddenly out of the money). This flow is exacerbating stock price moves in an already jittery market.

As an aside, and as we pointed out as recently as yesterday for energy names, the furious buying of calls has led to gamma exposure soaring to an all time high as the following chart from Sundial Research shows.

“Dealers are short calls due to the unprecedented call activity previously mentioned, and as a result have been forced to chase stocks higher to hedge,” Chris Murphy, Susquehanna’s co-head of derivatives strategy, wrote in a note to clients according to Bloomberg. “The unwind could potentially be violent given all the excess euphoria. It is more likely a question of when and not if.”


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