On Crashing In The Absence Of An Actual Market
Between these two forces, the stock market likely hasn’t had a legitimate bid in years.
Quoth the Raven writes on Substack
In case you’ve missed it, meme stock mania has made a bit of a resurgence here in 2025, with names like OPEN and KSS squeezing higher for what appears to be no reason at all. Zero Hedge did a great wrap up of the gamma squeeze in OPEN here.
The way these speculative meme cauldron-bubbles pop up is often reported by the media as fun and harmless.
“Those pesky Reddit traders are at it again,” some lobotomized newscaster will say, smiling about the fact that a company burning tons of cash is up 500% in three days for no reason.
But what they fail to point out is that such massive squeezes higher for no reason — happening for the first time in history over the last half decade — are a result of people weaponizing options gamma and a pervasive streak of unsophisticated investors entering the market.
These are symptoms that the market is sick — not that it’s working the way it’s supposed to.
It seems hilarious to think about, but look back on your own life — how many times have you argued with people about the efficient market hypothesis? How many man-hours have been wasted discussing whether or not the market is liquid, robust, and sophisticated enough to find fair prices for equities all day, every day?
This was argued because at one point, markets were functioning somewhat normally. Today, thanks to options and the passive bid, it isn’t. The market is Charlie Sheen in the midst of a manic episode during a nationally televised interview. I dare you to show me the difference between “I have tiger blood” and markets moving higher on the bullshit excuse of “animal spirits”. And the difference between “I’m not bi-polar, I’m bi-winning” and “who cares about fundamentals, stock price bro!”
The meme stock phenomenon is the opposite of a functioning market: it’s the market purposefully distorting prices because a bunch of teenagers are standing around bored — like it’s Friday night at the mall — sitting on their trading apps with nothing else to do but stir up trouble.
And don’t get me wrong. I don’t think they’re wrong for this. Hell, I’ve discussed publicly how I think the GameStop gamma squeeze was a great way to expose just how flawed the system was — and I’ve also said I was happy to see it take place, because for me, any short burst of volatility in the market is fun to bear witness to.
Traders have the right to bid up worthless assets as much and as often as they like… I don’t have any problem with that. But it should be giving us insight into how the rest of the market is functioning. It’s not people going in and buying Kohl’s equity or OPEN equity that are driving these stocks higher… It’s market makers hedging an obscene amount of call options in both names that’s fueling the move.
I’ve been arguing over the last couple of years that there are two main ways the tail is wagging the market dog:
- The passive bid — which I described last week and explained how it could result in a giant market crash the likes of which none of us are expecting.
- Weaponized options gamma
Between these two forces, the stock market likely hasn’t had a legitimate bid in years.
You thought market breadth was a problem? You thought a couple of stocks driving a single index higher was an issue? Wait until we have a passive bid unwind, or we see a monster gamma squeeze flip violently into a monster gamma crash — when puts become the weapon of choice instead of calls.
Only then will market participants and news anchors look dumbfounded at each other, point to charts on the screen, and ask each other where it all went wrong.
But I’m telling you right now where it’s going wrong as it’s happening: the passive bid and options gamma are driving this market higher. Again, we probably haven’t had a legitimate bid in the stock market in years.
They work hand-in-hand, with option dealers violently moving prices higher, and then the passive bid coming in to act as though there was genuine demand for that equity at that price all along — when there wasn’t.
As I wrote about this morning, valuations and consumer health don’t seem to make sense or gel with how the market is performing today. There’s a very short list of reasons why the market could be perpetually at all time highs now. At the top of that list, I would put the passive bid and gamma squeezes as the main culprits.
Of course, no one will talk about this until it creates some type of catastrophic situation that puts Congress’s 401(k)s at risk — which is when they’ll start paying attention. If you layer crypto into the equation — and then gamma squeezes on crypto names, plus passive bid buying of crypto names as well, before a crash in crypto — then you have a third horseman of hell, ready, willing, and able to potentially usher in an apocalypse.
And as my subscriber, you get the benefit of me being “wrong” all the time — when the fact of the matter is, I may just be early. So save this post, and let’s see if we wind up revisiting it at some point in the future, when the “actual” market analysts and the “real professionals” are out of ideas and looking for an explanation the charred wreckage of a market that sits smoldering behind them.
QTR’s Disclaimer: Please read my full legal disclaimer on my About page here. This post represents my opinions only. In addition, please understand I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. Contributor posts and aggregated posts have been hand selected by me, have not been fact checked and are the opinions of their authors. They are either submitted to QTR by their author, reprinted under a Creative Commons license with my best effort to uphold what the license asks, or with the permission of the author.
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Header featured image (edited) credit: The Wall Street Journal article tease open card. Emphasis added by (TLB)
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