S&P 500 Traders Watch Risk Pivot Amid Market Volatility

As the S&P 500 faces pressure from selling, traders are eyeing key levels that could signal increased volatility in the market. Is a sell-off imminent?

As the stock market experiences some turbulence, traders are keeping a close watch on the S&P 500 and its key ‘risk pivot’ levels. Currently, crude oil prices are on the rise, while bonds are seeing increased selling pressure. The recent turmoil has led to Big Tech stocks being offloaded following disappointing earnings reports, and the 10-year Treasury yield has just hit 4.7%, marking its highest point since January 2025.

This market situation mirrors that of March, which preceded a month-long sell-off in stocks, particularly as geopolitical tensions escalated. However, it’s noteworthy that the S&P 500 index remains relatively resilient, sitting just under 3% off its record high and trading above last month’s lows, a level that was first reached in May.

To assess potential future movements, options traders are focusing on the activity surrounding key price levels in the S&P 500. These traders analyze the positioning of major institutional investors who influence market dynamics by buying and selling securities. Insights indicate that market makers have been largely ‘long gamma’ in the lead-up to this week. This means they hold options that gain value with rising volatility. When the market experiences a downturn, they compensate for their puts by purchasing stock, and conversely, when the market rallies, they manage their calls by selling stock.

SpotGamma, Barchart, and Cboe LiveVol data suggest that the most significant trading positions are centered around the 7,500 level in the S&P 500. Such trading activity can create vital support and resistance levels, but these are not foolproof. Traders are concerned that if the index strays too far from these established levels, the favorable gamma could shift to a negative state. This transition could compel market makers, or dealers, to make reactive moves that could enhance market volatility rather than stabilize it.

According to Barchart’s volatility model, the pivotal threshold stands at 7,500. Traders may fear that if the State Street SPDR S&P 500 ETF Trust (SPY) drops below the 740 mark – where dealers possess the most gamma exposure – the risk of a substantial sell-off could increase significantly.

Brendan Herbert, the options product manager at Barchart, noted, “We are in a negative gamma regime. If we drop, market makers are going to have to sell to cover deltas, so they could in theory make a downward move more intense.” This perspective aligns with comments from Brent Kochuba, the founder of SpotGamma, who indicated in a recent client note that while positive gamma has diminished, there remains a moderate amount of positive gamma present up to the 7,300 level.

Kochuba emphasized that the S&P 500 has now fallen below a critical ‘risk pivot,’ prompting him to consider strategies involving short-dated, inexpensive, out-of-the-money put options that carry a bearish bias.