The S&P 500 options market just had its most chaotic day in recent memory. On May 7, traders pushed $2.6 trillion in notional call option volume through the system, a single-day record that forced dealers into a frantic hedging spiral.

Call options made up roughly 60% of all trading activity that day. The result was a textbook gamma squeeze, where the very act of hedging amplified the rally it was supposed to protect against.

How a gamma squeeze actually works

When traders buy call options in massive quantities, the dealers on the other side of those trades (firms like Goldman Sachs and Morgan Stanley) end up with what’s called negative gamma exposure. In English: every time the market ticks higher, these dealers need to buy more of the underlying asset to stay hedged.

The estimated net short gamma exposure during this event hit $7.5 billion. That’s a lot of forced buying pressure from institutions that aren’t making a directional bet. They’re just trying not to blow up.

Goldman Sachs had a colorful term for the behavior driving this: “semi-irrational chasing.” The bank compared the current environment to the late 1990s tech boom, when speculation ran so hot that fundamentals became an afterthought.

An AI-fueled rally with thin fundamental support

Goldman’s observation that the price action bore “little correlation to fundamental economic indicators” is the kind of quiet warning that tends to age either very well or very poorly.

This isn’t even the first time it’s happened recently. Back in April, a similar gamma squeeze pattern emerged when the S&P 500 punched through the 6,500-point level. That move was also supported by elevated short-gamma positioning and the same cocktail of AI optimism and geopolitical easing.

Two gamma squeezes in two months suggests this isn’t a one-off mechanical glitch. It’s becoming a recurring feature of the current market structure, where options activity has remained elevated throughout 2026.

Why crypto traders should care

Correlations between traditional equities and risk assets like Bitcoin have been climbing. When the S&P 500 rallies on what Goldman itself calls semi-irrational momentum, crypto tends to catch a bid too.

Traders focused on hedging strategies may find this environment particularly tricky. The same options market dynamics that created the squeeze can make protective puts more expensive, reducing the effectiveness of traditional hedging approaches right when they’re needed most.