In the complex and dynamic world of financial derivatives, tracking the movements of market makers can provide valuable insights into upcoming market behaviours. As we wrapped up the options expiration (OPEX) today, a significant notional value—totalling around $4.6 trillion—has been cleared from the books. Leading up to this event, dealers were positioned with a long exposure of approximately $3 billion in S&P 500 (SPX) gamma, indicating a bullish stance or a hedging strategy against market downturns.

Interestingly, despite the massive expiration, it’s expected that dealers will maintain a net long position. This sustained bullish tilt is anticipated due to the continuous selling of volatility by systematic traders. These entities are often seen replenishing the market, particularly by selling downside protection, which in turn affects the dynamics of supply and demand in the options market.

A key event caught the market’s attention today: a notable transaction in the Volatility Index (VIX) options. There was a purchase of 150,000 VIX May-June 35 call spreads, an investment strategy known colloquially as a “stupid,” due to the simultaneous purchase of calls at two different strike prices without selling any options. This activity contributed significantly to the elevated call volume observed today, where 1.19 million calls were traded—almost triple the 20-day average of 407,000.

Turning our attention to the upcoming week, we see the market pricing in a 1.52% move for the straddle, which is a derivatives strategy involving the simultaneous purchase of a put and a call option at the same strike price. This pricing reflects the anticipation of key events such as the Federal Reserve’s decisions, central bank outcomes in the United Kingdom and Japan, and the NVIDIA AI developer conference.

Particularly noteworthy is the situation with NVIDIA (NVDA), where the straddle for the next week is priced around 8.5%. This level of volatility premium is quite high, coming close to the figures we saw last month during NVIDIA’s earnings week, where the one-week straddle reached approximately 11.4%. Such high premiums reflect the market’s expectations of significant price movements, which could be driven by a variety of factors, including corporate earnings, product announcements, or sector-specific news.

As always, the dance of derivatives continues to be a fascinating display of expectations, hedging, and speculation, painting a picture of the market’s collective anticipation of future events. For traders and investors alike, keeping an eye on these signals can be the difference between being caught off-guard and being well-prepared for what the market brings next.