Gamma squeeze

A gamma squeeze is a sharp move in a stock or index driven by options dealers' hedging. When dealers are short gamma, a rising price forces them to buy the underlying to stay hedged, and that buying pushes price higher, which forces more buying. The same loop works to the downside.

How it builds#

1. Traders buy a lot of short-dated calls (or puts) near the current price.
2. Dealers sell those options and end up short gamma.
3. As price moves toward the strikes, dealers must buy (or sell) more of the underlying to stay hedged.
4. Their hedging adds to the move, and the loop feeds itself until the options expire, are closed, or price moves past the strikes.

Gamma squeeze vs short squeeze#

A short squeeze is driven by short sellers buying back stock. A gamma squeeze is driven by option dealers hedging. They can happen together, which is what made the biggest meme-stock moves so violent.

Signs to watch in q-bitf#

• Price below the gamma flip: dealers are short gamma and hedging chases the move.
• Heavy call or put buying in options flow, concentrated in near-dated expiries.
• Walls being eaten by today's flow rather than holding.
• A STRONG NEGATIVE regime badge.

None of these guarantee a squeeze. They tell you the conditions for one are in place.

Questions#

What is a gamma squeeze?#

A sharp move driven by options dealers' hedging: when dealers are short gamma, price moves force them to trade in the same direction, which pushes price further.

What is the difference between a gamma squeeze and a short squeeze?#

A short squeeze comes from short sellers buying back stock; a gamma squeeze comes from options dealers hedging. They can happen at the same time.

How do you spot a gamma squeeze?#

Look for price below the gamma flip, heavy near-dated options buying in one direction and walls that break instead of holding.