S&P 500 risk pivot draws trader focus as yields and oil climb
Options traders are watching 7,500 on the S&P 500 as rising oil, a 4.7% 10-year yield and tech selling pressure equities.
By Amanda Ross · Deals Correspondent
· 3 min read
The S&P 500 risk pivot moved into focus for options traders on Thursday as equities fell, crude oil advanced and bonds weakened. The index was down 108.54 points, or 1.45%, at 7,390.42 shortly after 3 p.m. in New York, while CNBC reported that the 10-year Treasury yield touched 4.7%, its highest level since January 2025.
The pressure followed selling in large technology shares after earnings, according to CNBC. Even with Thursday’s decline, the S&P 500 remained less than 3% below its record, traded above last month’s lows and sat near a level it first reached in May.
Traders are comparing the market tone with conditions in March, when a rise in geopolitical risk tied to the Iran war preceded a month-long equity sell-off, CNBC reported. The current focus is whether options positioning that has helped keep the index contained can continue to damp market swings.
What is the S&P 500 risk pivot level?
The risk pivot is the level at which options positioning may shift from cushioning market moves to amplifying them. Barchart’s volatility model put that point at 7,500 for the S&P 500, according to CNBC, meaning a move below that area may reduce the steady dip-buying that traders had associated with dealer hedging.
Options market makers, also known as dealers, provide liquidity by buying and selling options and the underlying securities. When they are positioned in what traders call positive, or long, gamma, they often hedge by buying shares as the market falls and selling shares as it rises, a pattern that can suppress volatility.
An analysis cited by CNBC using SpotGamma, Barchart and Cboe LiveVol data indicated that dealers had probably been long gamma for at least a month before this week. The largest options positions were clustered near 7,500 on the S&P 500, the analysis showed.
That concentration has helped explain why the benchmark has spent much of the period since mid-May inside a range of roughly 200 points, according to options traders cited by CNBC. Such levels can act as areas where trading activity slows or reverses a move, though they can fail if the index pushes far enough away from dealer positioning.
How could dealer hedging affect the next move?
If the market shifts into negative gamma, dealers may need to sell as prices fall to keep their hedges aligned. Brendan Herbert, options product manager at Barchart, told CNBC that the market was in a negative gamma regime and said a decline could require market makers to sell to cover deltas, which could make a downward move more forceful.
The SPDR S&P 500 ETF Trust, ticker SPY, is also under scrutiny. CNBC reported that a drop below 740 in SPY, where dealers have the greatest gamma exposure, would increase the risk of a larger sell-off.
SpotGamma founder Brent Kochuba wrote in a Thursday client note, cited by CNBC, that positive gamma in the market had been reduced but that a relatively small amount remained down to the 7,300 level on the S&P 500. He also said the index had moved below a risk pivot and described adding short-dated, low-cost out-of-the-money put flies with a bearish directional bias.
The broader macro backdrop has added to the sensitivity of equity trading. Higher oil prices can feed concerns about inflation and corporate costs, while rising Treasury yields can weigh on valuations by increasing the return available on lower-risk government debt.
This story draws on original reporting from CNBC.
