Options trading drives stock rally while energy sector lags

The S&P 500 has logged its seventh straight week in the green, buoyed by a surge in call‑option buying and leveraged‑ETF inflows, even as the energy sector stays conspicuously out of the rally [2].

Over the past seven weeks, bullish options activity—especially short‑dated, zero‑day‑until‑expiration contracts—has forced market makers to buy shares to stay “delta neutral,” creating a “gamma squeeze” that amplified price gains. The Squeeze Metrics Gamma Index, which tracks dealers’ exposure to sold call options, hit its highest level since 2021, a level analysts describe as “historically high” [2]. When gamma spikes, dealers must purchase the underlying stocks, feeding the rally further.

The rally’s engine is not just earnings. While the first‑quarter earnings season delivered a 27.7% blended growth rate for S&P 500 members—the fastest since Q4 2021—most of that lift came from semiconductor and energy names, leaving other sectors thinly supported [2]. Heavy buying of leveraged ETFs and options‑based products has reshaped market dynamics, magnifying both upside and downside risk, according to Nomura’s cross‑asset strategist Charlie McElligott [2].

Meanwhile, the energy sector, despite soaring commodity prices, has not participated in the upside. The article notes that surging energy prices (CL00, BRN00) initially pushed the S&P 500 toward correction territory in March, but the subsequent rebound was driven by other sectors, leaving energy stocks lagging behind the broader market gains [2]. This divergence raises a warning flag for investors who might assume the rally is universal.

The concentration of gains in a handful of hot tech and energy stocks, combined with extreme options positioning, could set the stage for a sharp pullback. Former options market maker Daniel Roos warns that the current leg higher may “give way to a painful pullback” as profit‑taking and positioning shifts occur [2]. Moreover, the Cboe Implied Three‑Month Correlation Index fell to its lowest since January 2025, suggesting investors are crowding into individual stock bets rather than broader macro trades, a pattern that historically precedes volatility spikes [2].

If the gamma‑driven boost fades, the market could see amplified losses, especially for leveraged‑ETF holders, underscoring why the energy sector’s silence matters: it highlights the rally’s fragility and the risk that a sector‑wide correction could trigger a broader downturn. The real question now is whether the options‑driven momentum can sustain itself or if a rapid unwind will expose the market’s underlying weaknesses.