How to Rise, How to Fall! Amid the “Double-Edged Sword” of the AI Options Frenzy in the US Stock Market, Nvidia’s Earnings Report May Become a Turning Point for the Market

U.S. stocks continue to rise amid the AI-driven options boom, but highly concentrated positions are accumulating risks.

Market structure shows that, around the May options expiration, the technical support for the rally could quickly shift, with Nvidia’s earnings report window potentially becoming a key point for volatility re-pricing.

The strong leadership of semiconductors and large tech stocks provides fundamental support for this rebound, while the fueling effect of the options market further amplifies the upward momentum. The surge in call option demand, increased hedging buy orders from market makers, and declining realized volatility form a mutually reinforcing positive feedback loop, continuously attracting buying interest.

However, the fragility of this structure should not be overlooked. After options expiration, the hedging flows from market makers stabilizing the market will diminish, and the expiration of VIX options combined with Nvidia’s earnings within days creates a natural window for volatility re-pricing. If AI momentum stalls or oil prices rise significantly, the current position structure supporting linear gains could quickly turn into a downward amplifier.

Options market fuels the rebound, market makers suppress volatility through hedging

Behind the current rise in U.S. stocks, the options market plays a key role. According to a recent report by SpotGamma, market maker hedging behavior should help keep realized volatility suppressed before the May options expiration (opex). MenthorQ’s model shows that the net Gamma of the S&P 500 index is in a clearly positive zone, which typically compresses intraday volatility.

Meanwhile, oil prices remain range-bound, and volatility has failed to break out effectively, providing fundamental cover for this rally. The combination of these factors creates a classic positive feedback loop of rising call option demand, passive hedging by market makers, and further declining volatility.

Semiconductor options trading is extreme, market breadth at unusually low levels

Concentration indicators are issuing warning signals.

SpotGamma points out that bullish options activity in the semiconductor sector has reached extreme levels. 22V Research cites data indicating that the Philadelphia Semiconductor Index RSI has risen to levels unseen since March 2000, and last Friday, the nominal trading volume of S&P 500 call options hit a record $2.6 trillion, with calls accounting for 60% of total options volume.

Market breadth is also concerning. Oppenheimer’s equity derivatives division notes that over the past month, only about one-fifth of S&P 500 components outperformed the index, indicating unusually narrow participation. The dispersion index has risen to its highest level in over a year, while implied correlation is near its lows for the year-to-date, suggesting tail risk demand has not significantly increased. Citigroup’s recent report also pointed out that VIX is trading at a premium relative to internal market indicators; if oil prices and geopolitical tensions do not escalate further, risk premiums could still compress.

Nvidia earnings report window may trigger volatility re-pricing

Timing is critical. Options expiration often removes the stabilizing hedging flows from market makers, especially in a market dominated by call options. The expiration of VIX options and Nvidia’s earnings within days creates a natural window for volatility re-pricing.

The current position structure supporting linear market gains before expiration could also amplify downside risks if AI momentum stalls or oil prices rise again significantly. This means that for investors betting on continued gains, the period around Nvidia’s earnings report is both a potential catalyst and a key moment to manage risks carefully.

Risk warning and disclaimer

Market risks are inherent; investment should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Invest at your own risk.