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Most traders understand the basic relationship between stocks and options — stocks move and option prices follow. That’s the textbook version, and in a normal market environment, it’s accurate.
But here’s what’s changed in today’s modernized market…
Sometimes the opposite can be true. There are specific scenarios where option activity spikes so aggressively it can physically move the share price itself. And it all comes down to how market makers hedge their risk.
Whenever you buy an option, you’re essentially buying it from a market maker. Their job is to stay neutral, which means they hedge every option they sell by buying or selling shares of the underlying stock.
When option activity is normal, meaning no aggressive spikes, they only need to purchase a normal amount of shares to keep their books balanced. But when option volume suddenly surges, they’re forced to buy or sell far more shares to maintain that hedge — and that’s when the stock can start reacting to the options instead of the other way around.
When option activity spikes by five times, market makers must buy five times as many shares. If it spikes by 20 times, they buy 20 times as many shares. And that kind of forced buying can quickly push a stock higher.
The 5% Threshold That Changes Everything
The key is measuring what percentage of daily share volume this hedging represents. Over years of tracking these setups, one level consistently stands out: 5%.
When hedging activity makes up more than 5% of total daily volume, the pressure is often strong enough to create an instant directional move.
That’s the line where the tail starts wagging the dog. It’s not theoretical — it’s observable. Once hedging crosses that threshold, the stock frequently begins responding to the options flow rather than broader market forces.
Take Altria Group (MO). On Mar. 12, it triggered a 34.6x spike in bullish option activity. Massive on its own, but the real signal came from the hedging metric, which hit 20.9%.
That means market makers would have to buy more than 20% of all shares traded that day just to stay balanced. That kind of buying pressure is enough to ignite a move.
When Liquidity and Volatility Matter
Not every stock behaves the same way under these conditions. Highly liquid names like Microsoft (MSFT) or Nvidia (NVDA) trade enormous volume every day, which means it takes far more option activity to generate outsized hedging pressure.
Thinner, more volatile stocks react more quickly because market maker demand makes up a larger percentage of daily share volume.
This is why bid-ask spreads, average daily volume and overall liquidity matter. Tighter spreads make it easier to get in and out efficiently while higher volatility gives the trade more room to run once hedging begins. The best setups strike a balance — enough liquidity to enter cleanly but not so much that market maker hedging becomes insignificant.
The strategy is simple: Identify moments when option activity spikes so aggressively that market makers are forced to buy enough shares to move the stock. When the hedging metric crosses above 5% — especially when it hits 20% or more — the opportunity can be immediate.
That’s the modern market. Sometimes the options flow doesn’t just predict the move — it causes it.
The team at Lance Ippolito Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.Â
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*We develop tools and strategies to the best of our ability, but no one can guarantee the future. There is always a risk of loss when trading. Past performance is not indicative of future results. The stated results are based on live-tracked signals from 2/25/26 to 4/25/2026. The win rate has been 89% on the options with an average return of 80% over a 2 Day hold time.
