When the Tail Wags the Dog: How Options Trading Can Move U.S. Stock Prices

Figures reflect data published through October 2026.

At times, options trading can move stock prices. When traders buy or sell options in size, the dealers on the other side hedge by trading the underlying shares, and that hedging can push a price or hold it near a popular strike for hours or days. Over longer periods, I expect business results to matter far more than options flows.

You may have watched a stock jump or stall on a day with no news, or seen the market drift toward a round number into the close. Options trading is one reason. The options market used to be the tail that followed the stock market. Some days now, it does part of the wagging.

How big has options trading become?

Very large, and still growing. Options cleared through the Options Clearing Corporation averaged about 60.6 million contracts a day in 2025.¹ Through August 2026, the daily average was about 70.5 million.²

The fastest growth is in options that expire the same day they trade, called zero-days-to-expiration or 0DTE options. On S&P 500 index options (SPX), Cboe reports that 0DTE volume averaged a record 3.2 million contracts a day in the third quarter of 2026, out of 4.9 million for SPX as a whole.³ By my arithmetic, that is roughly two-thirds.

Individual investors are a large part of it. Cboe estimated that retail traders made up about 53% of SPX 0DTE volume in August 2025.⁴ Its research also found that more than 95% of 0DTE trades are in a limited-risk form, such as a bought option or a spread, where the most that can be lost is known at the start.⁵

How can an option move a stock?

An option is a contract giving the buyer the right to buy (a call) or sell (a put) a stock or index at a set price, the strike, until a set date. When you buy an option, the seller is often a market maker: a firm that quotes prices all day and aims to earn the spread, not to bet on direction.

To stay neutral, the market maker hedges. Having sold you a call, it buys some of the underlying shares, because the call gains value as the stock rises. How many shares it needs is the option’s delta, a measure of how much the option’s price moves for each dollar the stock moves.

Delta itself changes as the stock moves. That rate of change is gamma, and it is highest for options near their strike and close to expiration, which describes most 0DTE contracts. When dealers have sold many calls and the stock rises, gamma forces them to buy more shares, which can push the price higher still. The SEC staff describes this feedback loop as a “gamma squeeze.”⁶

Why prices can stick, then suddenly move

The same mechanics can calm a market or rattle it, depending on how dealers are positioned.

• Dealers long gamma (net buyers of options): to stay hedged, they sell as prices rise and buy as prices fall. That trading leans against moves and can hold a stock or index near a large strike, an effect traders call pinning.
• Dealers short gamma (net sellers of options): they buy as prices rise and sell as they fall. Their hedging adds to moves rather than damping them.

Positions change as options expire and new ones are opened. A market that has been unusually quiet can become unusually jumpy when a large block of options expires, or when news arrives that pushes prices through the strikes where dealers were hedged.

Is 0DTE trading making markets more volatile?

The debate is open. The concern is that heavy same-day trading, concentrated near a few strikes, could force large hedging trades in a fast market.

Cboe’s own research, published in May 2025 after the sharp market swings of that April, reached a different conclusion for SPX. It found customer 0DTE buying and selling broadly balanced, so dealers’ net hedging needs were small, at most about 0.2% of the index’s daily liquidity.⁵ Cboe operates the exchange where SPX options trade, so I read its findings as informed but not disinterested. Both things can be true: index 0DTE flows may net out on most days, while options activity in a single popular stock can still matter.

What GameStop did and did not show

GameStop’s rise in January 2021 is often told as a gamma squeeze. The SEC staff studied it and reported in October 2021 that it did not find evidence of one.⁶ Options trading by individual customers did surge, from $58.5 million on January 21 to a peak of $2.4 billion on January 27. But the increase came mostly from buying puts rather than calls, and market makers were buying calls, not writing them.⁶

The lesson I take is humility about explanations. A good story about why a price moved can spread faster than the data that tests it.

What have regulators done?

One recent change affects day trading generally rather than options specifically. In April 2026, FINRA adopted intraday margin standards that replace its pattern day trader rules, including the $25,000 minimum equity requirement for frequent day traders. The change took effect June 4, 2026, and firms may phase it in through October 20, 2027.⁷

How can you tell when options are driving a move?

There is no clean test, but a few signs are worth noticing:

• The move comes without company or economic news.
• Trading in short-dated options, especially those with strikes near the current price, is heavy compared with normal.
• The price drifts toward a round-number strike into an expiration, then moves freely afterward.
• The move fades once the options behind it expire.

None of these proves cause, and the list is a starting point for judgment, not a test. The signs are reasons to wait for information about the business before acting.

What does this mean for a long-term investor?

For a long-term portfolio, I treat options-driven swings as noise unless business news is behind them. A few practical points follow:

• A sharp move on no news may reverse once the options behind it expire. Chasing it is a bet on trading flows, not on the company.
• A stock that seems stuck may be pinned, and can move quickly once the pin is gone. Calm is not the same as safety.
• Options have legitimate uses. For a large single-stock holding, a collar or other hedge uses the same instruments to reduce risk on purpose.
• The harder skill is behavioral: not reacting to a move you cannot explain, which is the subject of my post on emotional intelligence in investing.

These points are a starting point for thinking about short-term moves, not a trading method. Over a decade, what I watch is whether a company keeps growing its cash flow, as I describe in great at a fair price. Market-wide worries, such as whether a recession is coming, deserve the same distinction between headline and substance. You can read about how I build and manage portfolios.

The Bottom Line

Options trading is now large enough, especially in same-day contracts, that dealer hedging can push prices around or hold them still for short periods. The research on whether it adds to volatility is mixed, and popular explanations, like GameStop’s supposed gamma squeeze, do not always survive the data. For a long-term investor, the useful response is to recognize these moves for what they are and keep decisions tied to the businesses you own.

If you would like to talk through how short-term market swings bear on your own portfolio, book a complimentary 15-minute call.