The Cboe Volatility Index (VIX) rose sharply today, climbing to 23.4, as heavy call option buying across U.S. equities fueled a gamma squeeze. This "spot up, vol up" dynamic reflects intense investor demand for upside exposure in growth names. The Nasdaq Composite gained 1.7 percent to 26,247, while the S&P 500 increased 0.8 percent to 7,399.
The surge in call volume centered on artificial intelligence stocks, driving prices higher as market makers hedged their short gamma positions. This aggressive buying activity propelled the market in a manner not seen since the Summer of 2020 Softbank squeeze, when a similar options-fueled frenzy gripped tech shares. Investors are rushing to capture gains in the ongoing AI rally, with options expiring this week showing substantial open interest in out-of-the-money calls.
Nvidia led the charge among chipmakers, rising 1.8 percent to $215.20, with options data showing out-of-the-money calls attracting premiums. Microsoft, a key AI software and cloud provider, closed down 1.4 percent at $415.12, reflecting a rotation into higher beta names. Tesla also saw a strong day, gaining 4.0 percent to $428.35, as options traders positioned for momentum in the EV sector's AI integration efforts.
This gamma squeeze suggests strong conviction among institutional and retail investors that AI growth remains underpriced, despite recent gains. We maintain our overweight rating on Nvidia, projecting a target of $250 by year-end, based on sustained data center demand and new product cycles, particularly the Blackwell platform. The current options activity signals potential for short-term upside as market makers continue to rebalance exposure, creating a self-reinforcing buying loop.
The aggressive call buying also pushed the implied volatility for many AI-related stocks higher, indicating increased perceived risk and potential for larger price swings. This volatility surge could attract more speculative capital, but also increases the cost of hedging for market participants.
Investors will closely watch Nvidia's analyst day on May 28 for updates on its Blackwell chip ramp and sovereign AI initiatives, which could provide fresh catalysts. Corporate earnings from other key AI infrastructure providers, including Super Micro Computer and Broadcom, are also due in the coming weeks.
