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Stock Market Chaos Revved Up by Options Dealers Rushing to Hedge

  • Technical forces play big role amid extreme market moves
  • Option dealers seen in negative gamma with S&P 500 below 4,600
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Two days of big stock rallies have investors wondering: Is the new year’s selloff over? Maybe, but a couple researchers are pointing to below-the-surface dynamics that may be exaggerating moves and leaving investors exposed to more volatility.  

At Goldman Sachs Group Inc., strategists including Rocky Fishman found that the market’s ability to absorb orders worsened rapidly during last week’s turmoil. Liquidity evaporated so much that a measure based on the bid-ask spread of S&P 500 futures widened to levels not seen since the 2020 pandemic crash.