Option Chain Shows Arbitrage Opportunity Between SPX and QQQ Ahead of Fed's Meeting, With 5 Stocks Set for Gamma Squeeze

Markets are preparing for the Fed’s rate decision on Wednesday, with the S&P 500 and Nasdaq 100 both reaching new highs in anticipation of the expected rate cut. A 25 bps move is almost certain, but traders are looking for clues on the pace of additional cuts through the rest of the year, how monetary easing will extend into 2026, and Powell’s remarks will carry the most weight. While sentiment is already elevated heading into the meeting, option positioning suggests some caution against overheating and points to potential arbitrage opportunities. With downside risk appearing limited, investors are turning to alpha, and here are 5 stocks showing strong potential for a gamma squeeze.

Both the S&P 500 and Nasdaq 100 broke new highs on Monday, with RSI readings above 80, signaling a hot but not extreme level. The S&P 500 option chain looks more cautious, with the put/call open interest ratio at 2.68, slightly below August’s peak of 2.76. Historically, this ratio tends to track the index itself, meaning that as markets rally, investors increase hedging activity. The elevated level suggests investors are paying up for protection against a pullback, pointing to the possibility of a short-term correction.

By contrast, QQQ sentiment is more moderate, with the put/call ratio still below its recent high, leaving room for further upside. This aligns with the fact that several heavyweight tech names including Nvidia, Microsoft, Apple, and Amazon remain below record levels, leaving scope for outperformance. A long QQQ and short SPY positioning could act as a hedge or even an arbitrage play into the Fed’s decision, with tech’s relatively mild sentiment more attractive compared with the overheated broad market.

Optimism remains high for Wednesday’s meeting, especially after Powell acknowledged that rate cuts are appropriate given the soft labor market, while tariff-driven inflation is likely a one-off effect. A 25 bps cut is a done deal, but the dot plot could lean dovish given that three Trump-aligned members—Bowman, Waller, and Miran—are pushing for deeper easing.

Still, much of this dovish tilt may already be priced in, shifting investor focus to individual opportunities. Several stocks are showing surging option activity and potential for gamma squeezes, as heavy call buying pressures market makers to hedge with underlying shares, fueling further upside.

Amazon (AMZN) is drawing strong bullish flows, with large open interest in out-of-the-money calls expiring Friday. Contracts at the $235, $240, and $245 strikes total more than 137K, compared with 32K for the at-the-money call. Fundamentally, Amazon lags in the AI race, which has weighed on its stock, but it remains a long-term turnaround candidate. Like Google, which was once seen as an AI laggard before breaking $3T in market cap, Amazon could stage a similar comeback with its backing of Claude, a competitor to ChatGPT.

Intel (INTC) has been consolidating since late August, but option sentiment has turned more bullish. Open interest stands at 70K and 40K for the $25 and $26 calls expiring this week, with more than 20K contracts each at $27.5 and $28. The heavy positioning suggests growing bets on a sharp rally, though it remains unclear if this is tied to new developments.

Nvidia (NVDA) rebounded from a 2% drop on Monday, after reports that China had opened a preliminary antitrust probe. Investors were quick to buy the dip, with aggressive call activity showing over 100K contracts each at the $182.5, $185, and $190 strikes. Traders appear confident the investigation will have little impact, given Nvidia’s global AI dominance and the fact that its current guidance does not rely on China’s demand. While the stock recently corrected amid fears of Broadcom taking share, dip-buying momentum could trigger a strong rebound.

AMD (AMD) has notable call activity with 27K contracts each at the $165 and $170 strikes expiring this Friday, compared with 21K at the money. From a technical standpoint, the stock’s 3-day moving average has just crossed above the 7- and 10-day, forming a bullish reversal pattern.

Shopify (SHOP) continues its uptrend, with 3K and 4K calls open at the $150 and $160 strikes expiring this week. The stock rallied 3% on Monday and is already tracing a bullish pattern of higher lows and higher highs. With resistance nearby, a breakout could extend gains further.