Bears are in pain as the S&P 500 hits record highs. That may mean more upside for stocks.

The S&P 500 hitting record highs is causing pain for bears, or short sellers, who are yet to capitulate, according to Citi. This is significant because it suggests that there is still room for more upside in the market. If shorts continue to cover their positions, it could lead to a surge in buying activity, driving prices even higher.

In the options market, this dynamic could play out in a few ways. One possibility is that short sellers will need to buy back the stocks they've borrowed and sold short, or buy call options to hedge their positions, which could add fuel to the rally. Additionally, option traders may start to position for further gains by buying calls or selling puts, which could also contribute to upward momentum.

To watch next: investor positioning and sentiment indicators, such as the CBOE Volatility Index (VIX), to see if there's a shift in sentiment among short sellers and option traders. Also, keep an eye on margin debt and short interest data, which could provide further clues about the potential for a short squeeze or a continuation of the current rally.

Originally reported by marketwatch.com. OptionNews adds analysis for finance & markets readers.