Gamma Squeeze

Self-reinforcing rally driven by dealers buying stock to hedge short call positions.

In depth

When retail buys lots of calls, dealers (option sellers) must buy underlying stock to delta-hedge. Buying pushes stock higher, increasing call deltas, forcing more dealer buying. The 2021 GameStop and AMC episodes were partly gamma squeezes.

Related terms

Gamma

Rate of change of delta — measures how delta itself changes as the underlying moves.

Short Squeeze

A rapid price rise that forces short sellers to cover, accelerating the rally.

Options

Contracts giving the right (not obligation) to buy or sell an asset at a set price by a set date.

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