Definition Definition

Gamma Squeeze

A Gamma Squeeze is similar to a short squeeze in which it forces extra stock-buying activity owing to open possible alternative holdings on the underlying asset. It is engendered by the market maker rather than a trader.

Volatile price changes and enormous trading dimensions force market makers to leave their positions, resulting in such squeezes. Because of the enormous volume swapped by this squeeze, it may cause a price surge. These squeezes have a tendency to peak stock prices and decline when the squeeze is in progress. 

This squeeze usually rectifies itself although it may give traders some volatility and it occurs when a firm receives major news that affects the markets in either way. Because of this tendency, there is a lot of short-term fluctuation which generates the squeeze. Big brands like AMC, Tilray, GameStop, Tesla, Beyond Meat etc. have experienced gamma squeezes in the past. 

One of these squeezes can be profitable for investors but it can also be dangerous. Short squeezes and the ensuing gamma squeezes might linger for days or weeks, or they can go away in the blink of an eye depending on what's causing them. As a result, whether one of these squeezes will lead to a profit or a loss in the overall portfolio of a company is highly reliant on time.

Steps of a Gamma Squeeze

The steps to trading this squeeze are as follows:

  1. Register or log in 
  2. Study the market concerned 
  3. Conduct own analysis
  4. Take precautions to lower the risk
  5. Keep the position active, observe it, then completely close it


Use of the Term in Sentences

  • The two terms of gamma squeeze that we must keep an eye on are high short-stock investments and stock options activities.


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