does buying options affect stock price? Explained

Overview

This article answers the question "does buying options affect stock price" and explains how option-market activity can translate into measurable moves in the underlying equity. Readers will learn the main mechanical channels (market‑maker hedging, gamma dynamics, exercise/settlement), the informational channel (informed option flow), empirical magnitudes, conditions that amplify effects, and practical implications for trading. As of 2026-01-22, per a market report, major US indices closed strongly higher and put/call ratios declined, illustrating how options-related flows can coincide with broad market moves.

How option markets link to underlying markets

Options are financial derivatives whose prices are derived from an underlying asset. The question does buying options affect stock price builds on two linked facts: option contracts create exposures that must be managed by dealers and counterparties, and option trades can carry information about future price expectations. While option premiums themselves do not directly change a company’s fundamentals, the trading and hedging activity they provoke can cause transient or, in some cases, persistent shifts in the stock price.

Key mechanisms by which option trades can affect underlying stock prices

Delta-hedging by market makers

Market makers and dealers who sell options typically take the other side of customer orders. To remain neutral to directional risk, they delta-hedge: buying or selling the underlying shares in proportion to an option’s delta. Large volumes of option buying (for example, many long calls sold to market makers) often force dealers to buy the underlying stock to hedge their short-delta exposure.

These hedging trades are executed in the cash market and can move prices, particularly when flows are concentrated in size, strike, or time. Delta-hedging is a primary mechanical channel linking the option market to spot prices.

Gamma and dynamic hedging effects

Gamma measures how an option’s delta changes as the underlying moves. Dealers with net short-gamma exposure must adjust hedges more aggressively when the stock price moves: they buy more as the stock rises and sell more as it falls. This dynamic creates momentum-like feedback: hedging amplifies intraday moves, increasing volatility around large or concentrated option positions.

High gamma exposure concentrated at particular strikes or near expiration can exacerbate short-term price swings and intraday flow patterns.

Option exercise and settlement (expiration effects)

When options are exercised or settled, actual transfers of stock or cash occur. Large open interest in options that are deep in-the-money near expiry can lead to substantial exercise/assignment activity, producing a need to buy or sell shares in the cash market. Empirical work shows measurable price effects on expiration dates for some stocks.

Index and single-stock option expirations can also create temporary supply-demand imbalances, sometimes producing the so-called "pinning" effect where a stock clusters near a strike.

Option-induced order imbalance and liquidity impact

Option hedging flows translate into stock orders. If the underlying stock has limited liquidity, these added orders can move price more than they would for highly liquid large-cap stocks. The resulting order imbalance—more buy- or sell-side pressure—creates price impact and short-term deviations from fundamental value.

Information transmission and informed trading

Beyond mechanical hedging, option trades can represent informed views. Certain traders prefer options to express directional or volatility views because options can offer leverage and asymmetric payoff. When sophisticated traders generate heavy option flow, market participants and dealers may infer private information, causing prices to adjust even before any hedging trades occur. Academic studies find option order flow can predict future equity returns, implying an informational channel in addition to mechanical effects.

Synthetic positions and hedging via the underlying

Synthetics—combinations of calls, puts, and cash or shares that replicate long or short equity exposure—can create effective stock exposure without immediate trading in the cash market. However, large synthetic positions often lead counterparties to hedge the equivalent exposure in the underlying stock, producing identical cash-market impacts to direct option-induced hedging.

Empirical evidence

Short-term and expiration effects

Empirical research documents measurable price impacts around option expirations. For example, a study in the Journal of Empirical Finance found that stocks with concentrated deep in-the-money call open interest experienced statistically significant negative returns around expiration due to selling pressure linked to exercise and liquidity needs. Reported magnitudes in some samples are on the order of magnitude of a few tenths of a percent to near 1% on expiry for affected stocks, often short-lived and sometimes followed by partial reversal.

These expiration effects are more visible in smaller-cap or lower-liquidity names where exercise-related or hedging flows make up a larger fraction of daily volume.

Predictive power of option order flow

Research in major finance journals shows option-induced stock order imbalances have cross-sectional predictive power for future returns. One influential paper finds that option order flow is informative about future equity returns even after controlling for contemporaneous stock order flow, supporting the view that options can be an information-rich venue. This implies that some option trades are placed by informed traders, and their activity is incorporated into prices via both direct inference and hedging activity.

Longer-term firm-level effects

Beyond immediate price moves, several studies examine whether active options markets influence corporate outcomes. Evidence suggests that options trading—by improving price discovery and allowing better risk transfer—can enhance informational efficiency, affect investment sensitivity to stock prices, and, in some settings, raise firm valuation measures like Tobin’s q. These effects are generally subtle and operate over longer horizons compared with the mechanical, short-term price impacts discussed above.

Magnitude and persistence

Putting the empirical findings together: option-related impacts are usually transient and concentrated around large flows, expirations, or in low-liquidity stocks. Magnitudes vary by context: small for highly liquid mega-cap names, but potentially material (tenths of a percent up to around 1%) for lower-liquidity issues on particular days (for example, expiration or heavy directional flow days). Persistent effects can arise when options enable or reveal sustained informed trading that gradually moves the stock as new information is incorporated.

Conditions that amplify option‑induced price effects

• Large open interest concentrated at a few strikes or expirations
• Near-expiration dates and exercise windows
• Deep in‑the‑money positions requiring assignment
• Low underlying liquidity or small-cap stocks
• Concentrated gamma exposures amongst dealers
• Large institutional directional or hedging flows

When several of these conditions co-occur, price impacts from option activity are most likely and most pronounced.

Market participants and their roles

Market makers and dealers

Dealers facilitate option liquidity by taking the other side of customer trades and managing inventory through delta/gamma hedging. Their hedging activity is the main mechanical route by which option trading produces stock trades. Dealers’ risk management choices (how aggressively to hedge, use of delta limits, algorithmic execution) affect the magnitude and timing of hedging flows.

Hedgers and institutional players

Institutions use options to hedge exposures, implement strategies, or obtain leverage. Their large trades can generate substantial dealer hedging flows and, through informational channels, can shift the perceived fair value of the underlying.

Retail speculators and algorithmic traders

Retail option buying has grown substantially in recent years; while individual retail trades are small, aggregated retail flow can be meaningful, particularly in certain names. Algorithmic liquidity providers and volatility traders also participate and their activity interacts with dealer hedging, influencing price dynamics.

Theoretical perspectives

Microstructure theories connect order flow with price formation. In classic frameworks, an uninformed liquidity trader and an informed trader interact with market makers who set prices based on order flow. Extending these models to include derivative markets shows derivative order flow influences spot prices through hedging and information channels. Models of dynamic hedging capture how gamma exposure creates feedback effects that can amplify volatility when hedgers trade into price moves.

Common misconceptions and limitations

• Options are derivatives: their fair value depends on the underlying, not the other way round in a vacuum. Saying "options cause prices" without context is misleading.
• Causality is conditional: option trading affects stock price primarily through mechanical hedging and information channels, and only when flows or liquidity conditions make hedging trades large relative to market capacity.
• Not every option trade moves the underlying: most idiosyncratic or small option trades have negligible spot-market impact.
• Observed correlation between option activity and stock moves may reflect informed trading, where both are responses to the same private information rather than pure mechanical causation.

Practical implications for traders and investors

• Expect higher volatility and potential "pinning" near option expirations. Monitor expiration calendars and concentrated open interest.
• Watch open interest, put/call ratios, and unusual option flow as short-term signals; these metrics can indicate where dealer hedging might create stock flow.
• For large option strategies, account for liquidity and slippage in both the options and underlying stock markets because hedging trades may move prices.
• Retail traders should be cautious about interpreting option flow in isolation as causal. Combine option-flow information with other market indicators and fundamental context.
• Professional desks and algorithmic traders often monitor aggregate option order flow to anticipate hedging-driven stock order imbalances.

Note: This is educational content and not investment advice. Bitget provides trading tools and market data that can help monitor option and spot liquidity conditions.

Applicability to cryptocurrency markets

The same mechanical and informational channels operate wherever liquid options markets exist, including some cryptocurrency markets. Differences matter:

• Crypto derivatives are often settled in a different asset or stablecoin, and some options are cash-settled—this affects how hedging of delta is implemented.
• Many crypto markets trade 24/7, altering the timing of hedging and settlement flows.
• Liquidity in crypto spot and options markets can be thinner, so a given option flow can have larger price impact.
• Custody, margining, and exchange structure differ in crypto and can change how exercise/assignment and hedging are executed.

Where Bitget offers options and derivatives, traders should be aware of these structural differences and use Bitget Wallet for custody and Bitget market tools for order-flow monitoring.

Examples and notable case studies

• Expiration-induced selling: empirical work documents episodes where concentrated call open interest that became exercisable generated selling pressure near expiry, producing short-term negative returns on affected stocks in the range of a few tenths of a percent up to near 1% on that day.
• Concentrated flows preceding moves: academic and market-study narratives describe cases where heavy directional option buying by informed traders preceded significant equity moves; the option trades either conveyed information or created hedging flows that amplified the move.
• Firm-level outcomes: studies linking option market activity to investment and valuation changes find that derivatives trading can have economy-wide effects through improved price discovery and risk allocation.

Open questions and areas for further research

• Precise causal quantification at high frequency: disentangling information vs. mechanical hedging at sub-minute frequency remains an active research area.
• Cross-market transmission: studying how index option flows propagate to constituent stocks and across related assets.
• Crypto-specific dynamics: measuring how custody, settlement, and 24/7 trading alter hedging and exercise impacts in digital-asset markets.
• Longer-term corporate effects: more work to assess how liquid options markets affect firms’ financing, investment, and governance decisions.

Market context note (timely observation)

As of 2026-01-22, per a market report, the three major US indices posted strong gains in a session marked by falling implied volatility and lower put/call ratios. This type of session is illustrative: declining hedging demand and reduced defensive options positioning can coincide with broad-based equity rallies. Put/call ratio declines often reflect lower hedging flows and may reduce downward pressure attributed to protective put activity; conversely, heavy tail risk hedging can produce selling pressure when options are bought for protection.

Quantitative measures to watch include market capitalization changes, daily trading volume relative to 30-day averages, and option open interest concentration by strike and expiry. These metrics help assess whether option-market activity is likely to move the underlying on a given day.

References / Selected sources

• Investopedia — How Options Data Predicts Stock Market Trends (overview of option metrics)
• Review of Financial Studies — Does Option Trading Have a Pervasive Impact on Underlying Stock Prices? (academic study)
• SpringerOpen — The effect of option trading (firm-level effects, 2021)
• Journal of Financial Economics / IDEAS — Options trading activity and firm valuation (Roll, Schwartz, Subrahmanyam)
• Journal of Empirical Finance — Stock returns on option expiration dates: Price impact of liquidity trading
• Journal of Financial Economics — Does option trading convey stock price information?
• VectorVest & SteadyOptions — Practical commentary and common misconceptions

Sources above represent peer-reviewed and market-education materials used to compile mechanisms, empirical findings, and practical takeaways.

Further reading and next steps

If you monitor options and want an integrated spot-and-derivatives view, explore Bitget’s market data, options chains, and Bitget Wallet features for safer custody and execution. For institutional workflows, consider how option-flow analytics and liquidity metrics can be incorporated into execution planning and risk management.

Actionable checklist for traders (quick)

• Check option open interest by strike and expiry before placing large trades.
• Monitor put/call ratio and unusual option flow alerts.
• Anticipate higher volatility and possible pinning near expirations.
• Factor in liquidity and expected dealer hedging when sizing orders.
• Use Bitget trading tools and Bitget Wallet for secure execution and custody.

Closing guidance

Understanding does buying options affect stock price requires seeing options as both a mechanical and informational channel into the stock market. Most option trades do not move large, liquid stock markets materially, but concentrated flows, expirations, low liquidity, and informed activity can produce notable price effects. Traders and investors who track option metrics, open interest concentration, and expiry calendars gain practical foresight about short-term execution risk and potential volatility.

For up-to-date market tools and option trading capabilities, learn more about Bitget’s derivatives and custody features to better monitor and manage option-driven market dynamics.