(Bloomberg) -- An options strategy that’s typically the realm of risk-takers is suddenly looking more attractive than buy-and-hold. And as more traders jump in to get a piece of the action, it’s helping keep US stocks penned in a tight range. 

The strategy — selling both puts and calls — is known as a straddle, if both contracts are at the same strike price, or a strangle, if the call and the put are at different levels. While in the long run the trade exposes the seller to potentially losing lots of money if shares rise or fall, it’s creating a short-term feedback loop that pins the S&P 500 Index in place, which in turn makes the strategy more successful.

The S&P 500 Index has gone more than 300 sessions without registering a drop of 2% or more as shares have climbed to records, led by technology giants.

“We are seeing absolutely pervasive at-the-money volatility selling from customers,” writes Nomura’s cross-asset strategist Charlie McElligott. 

While selling ultra short-term options isn’t a new thing, the new twist is that traders aren’t just overwriting long stock positions with short calls — where they collect premium while potentially missing out on a big rally — but also showing a greater willingness to sell puts and risk a loss if stocks tumble.

What’s more — the selling of options, usually considered to be a rather high-risk trade, is now looking better on paper than simply owning stocks. That’s based on the Sharpe ratio, a measure of risk-reward, that has selling daily straddles or strangles more attractive over a one- and three-month period. 

The knock-on effect is that all this short-term option selling by customers leaves dealers long both calls and puts — known in options parlance as being “long gamma.” In order to keep their positions balanced, the dealers need to sell the index on the way up and buy the index if it falls, dampening any moves.

“Accordingly, the index options dealer long gamma position that we see intraday is simply choking out the ability to move close-to-close,” says McElligott, adding that some $10 billion of gamma is amassed in a 1% move of the stock market. About 90% of that amount is gone by just a week, as the flow is so extremely concentrated in selling short-dated options, according to McElligott.

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