The Quick-Buck Trap: The Call Option Bubble

Chasing fast money in a market driven by speculation

As we approached the onset of summer last year, we drew attention to the start of Stock market call option bubble, as outlined in this LINK and warned in July 2024 that there was a massive opportunity for the VIX to explode higher because of it. In light of the current market fluctuations, there has been a resurgence of interest by many in the film “Boiler Room.”

“I read this article a while back that said Microsoft employs more millionaire secretaries than any other company in the world. They took stock options over Christmas bonuses—smart move. I remember seeing this picture of one of the groundskeepers standing next to his Ferrari. It blew my mind. Stuff like that plants seeds, makes you believe getting rich is possible—even easy. Then you turn on the TV, and there's more of it: the latest internet stock soaring, promising millions if you just got in early. And that's exactly what I wanted—to get in. Innovation didn't matter to me anymore. I just wanted the quick and easy buck. Like Notorious BIG said: 'Either you're slingin' crack-rock, or you've got a wicked jump-shot.' Nobody wants to grind it out anymore… So I chose the Wall Street version of slinging crack-rock—I became a stockbroker.”

This iconic speech from Seth in the film, it encapsulates the timeless allure of easy wealth without the sweat. In 2025, this fantasy has evolved into a financial phenomenon centered around call options, particularly zero-days-to-expiration (0DTE) contracts, which have ballooned into an unprecedented speculative bubble.

Why has this happened? While direct ownership of stocks (not a 401k) among Americans has grown notably—jumping from just 15% in 2019 to an all-time high of 21% in 2022—most Americans' equity exposure remains indirect, primarily through retirement accounts like 401(k)s and IRAs. Indeed, more than nine in ten 401(k) participants held at least some stocks, with over 40% having more than 80% of their account balances in equities. Yet despite increased ownership, direct investments in individual shares remain challenging due to high share prices.

Take Nvidia, for example. Purchasing just 100 shares at today’s price-around $100-requires a significant upfront investment ($10,000), far beyond the reach of most Americans, especially considering recent reports that the majority cannot cover a $1,000 emergency expense. Now, assuming a generous 10% annual return on Nvidia ($1,000 a year), such an investment is unlikely to deliver the rapid wealth or luxury many hope for. Meanwhile, Nvidia short-term appreciation has been limited over the past 11 months (it’s 0%). In contrast, Main Street’s latest fascination-call options, particularly zero day call options contracts-offers a tempting alternative. Instead of tying up $10,000 in the stock, a retail investor can make a speculative bet on Nvidia’s weekly price swings, with the potential to double their money in a matter of days, albeit with much higher risk of losing it all.

With such lucrative possibilities, the question arises: Why would an average speculator buy the underlying asset when rapid riches seem just a call option away? This speculative mentality, encouraged by platforms like Robinhood and social media hype, has transformed Main Street into a modern-day Boiler Room, igniting a market driven by narratives, fantasies, quick profits and speculative bets rather than fundamental investing.

The Rise of 0DTE Options

We had our first in depth coverage on the 0DTE option bubble last year ( HERE ), contracts that expire on the same day they're traded, have surged dramatically in popularity. Once a niche trading tool, their share of the total options volume for the S&P 500 has risen sharply—from just 19% in 2022, to 44% in 2023, reaching a stunning 60% by May 2025.

This explosive growth is backed by astonishing volume statistics. In February 2025, daily volume for stock options hit a record 3.49 million contracts. Of these, approximately 1.95 million contracts were 0DTE vs other at 1.54 million, marking their dominant presence.

Robinhood: The Casino Floor

Robinhood, the trading platform famous for gamifying investments, has played a significant role in stoking this frenzy. With its simplified interface, zero commissions, and instant deposits, Robinhood has transformed trading call options into a form of entertainment, like a casino. The introduction of index options in October 2024, especially those linked to the S&P 500, has driven retail investors—often young and inexperienced—to speculate heavily. Options trading revenue surged by 63% in Q3 2024 alone, with Robinhood reporting 26.2 million active accounts.

Platforms like Robinhood Legend further encourage rapid, speculative trading through vivid graphics, real-time feedback, and educational modules that turn complex financial instruments into game-like quests.

Momentum Over Fundamentals: The SPMO Phenomenon

The speculative surge in call options has heavily favored momentum-driven ETFs such as the S&P 500 Momentum ETF ( $SPMO). This ETF is mainly Nvidia, Tesla, and Palantir. Buts what’s interesting is as of May 14, 2025, SPMO hit an all-time high of $104.66, a 10% year-to-date increase and rose 28% since the March lows beating out the regular stock indexes but the stocks that make up the index did not.

This rise has been fueled not by underlying economic or business fundamentals ( Tesla Missed Earnings ), but by aggressive speculative activity in call options on these stocks ( Tesla (PE ~195), NVIDIA (PE ~45), and Palantir (PE ~550)), which all increased the most and are the largest holdings in the SPMO ETF.

In stark contrast, fundamentally sound stocks like Alphabet (Google), boasting a modest PE of around 16, languish down approximately -20% below their February highs. Google's stock price sits at $165.37, down from its high of $206.14 earlier in the year. The broader NASDAQ is down approximately -6%, and the S&P 500 similarly trails its peak by around -4%, clearly highlighting the divergence between speculative fervor and fundamental strength.

The Bubble Mentality

What makes this situation particularly dangerous is the widespread belief among speculators that prices will continually rise, creating a mentality that losses are impossible. Speculators flood into call options rather than owning actual shares of the underlying assets. A recent data point showed that call options are now approaching their highest levels when the stock market made was at its top, as well as July 2024 levels. This has normally been a flashing warning sign.

Most speculators lack substantial capital to own large positions outright; instead, they gamble smaller sums, typically $1,000 to $10,000, hoping to double their bets quickly through options, fostering a casino-like atmosphere reminiscent of "get rich quick" schemes popularized in movies like Boiler Room.

Gamma Squeezes and Market Volatility