Mt. Everest and Market Tops

I’ve never been much of a mountain climber, but I do understand the challenge of reaching the summit.

Take Mt. Everest, for example.

At some point, climbers finally reach the top after navigating a narrow trail packed with exhaustion, dangerous conditions, and unfortunately, plenty of trash left behind by previous expeditions. After all that effort, the moment at the summit is surprisingly brief. A few quick photos, a moment of celebration, and then the descent begins.

The market can behave the same way.

Right now, the broader market, especially semiconductors, has been climbing aggressively. Unlike Everest, the trail higher hasn’t been filled with trash. For traders participating in the move, it has largely been a profitable climb.

But eventually, everyone reaches the summit at the same time.

And when that happens, the trip down can start very quickly.

The Reality of Big Market Moves

If you feel like you haven’t fully taken advantage of this rally, don’t beat yourself up.

That’s the nature of trading.

Even when traders catch a strong move, there’s always the temptation to think:

“I should have bought earlier.”
“I should have held longer.”
“I should have taken a bigger position.”

But that’s not reality. That’s hindsight.

The goal is not perfection. The goal is consistency and disciplined execution.

Why Risk Increases Near Market Extremes

As markets continue pushing higher, the potential reward often shrinks while the downside risk grows larger.

I’m not calling a market top here. I’m simply pointing out the environment we’re operating in.

One thing that stands out is the extreme imbalance between call buying and put buying. Recently, nearly 60% of all SPX options volume consisted of call options, an unusually bullish level of speculation.

That kind of optimism can fuel markets higher for a while.

Until it doesn’t.

Understanding the Gamma Squeeze

What we may be seeing now is a gamma squeeze in progress.

Here’s the simplified version:

Traders aggressively buy call options
Market makers hedge by buying stock
That buying pushes prices even higher
Rising prices attract even more buyers
Market makers are forced to buy even more stock to hedge

The cycle feeds itself.

Momentum builds. Excitement grows. Everyone feels invincible.

Until the buying pressure finally runs out.

Then the reversal can happen fast.

Don’t Be Left Holding the Bag

You cannot control what the market does.

You can only control what you do.

That’s why great traders always focus on risk management first.

Yes, there is always the risk of missing further upside. But there is also the risk of protecting nothing and giving back gains when conditions change.

Successful trading is about balance.

If you are not consistently aware of downside risk, it becomes extremely difficult to develop the kind of long-term consistency that allows your equity curve to steadily move from the lower left to the upper right.

Manage your risk first. The opportunities will always be there.