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GAMMA SQUEEZE & Impact on Option Expiration


"GAMMA SQUEEZE" is a phenomenon that occurs when option market makers need to hedge their positions due to changes in the underlying asset's price, leading to increased buying pressure.

Options delta sensitivity (gamma) to underlying price movement is highest for ATM (at-the-money) option strike.

How Gamma Squeeze occurs?

A large number of call options are purchased on a particular underlying asset.

As the underlying asset's price rises, option market makers need to buy more shares to hedge their short positions, creating a feedback loop of buying.

Increased buying pressure drives the underlying asset's price higher, causing more short hedges and further fueling the squeeze.

This process can result in a rapid upward price movement, leading to potential gains for call option holders and difficulties for option sellers.

What are the impact of GAMMA Squeeze on expiry days?

Accelerated Price Movements: During a gamma squeeze, the underlying asset's price can experience rapid and amplified movements, potentially resulting in larger gains or losses for options nearing expiration.

Increased Option Sensitivity: As expiration approaches, options become more sensitive to changes in the underlying asset's price due to higher gamma values, magnifying potential profits or losses.

Pinning Effect: The price of the underlying asset gravitates toward an option strike price with a significant open interest, often observed at option expiration. This phenomenon can be accentuated during a gamma squeeze.

How to tackle Gamma Squeeze Situations?

Risk Management: Emphasize the importance of proper risk management, including position sizing, setting stop-loss orders, and utilizing risk mitigation strategies like hedging.

Understanding Market Sentiment: Encourage traders to monitor market sentiment, news, and social media discussions to gauge the potential for a gamma squeeze. Identifying increased options activity and unusual trading patterns can be helpful indicators.

Option Strategies:

Participating in the squeeze: Buying call options or shares of the underlying asset to capitalize on upward price movements.

Exiting positions: If a trader holds short options positions, they may consider closing or adjusting their positions to limit potential losses.

Spread strategies: Implementing spread strategies like vertical spreads or iron condors to mitigate risk and take advantage of potential price movements.

Kindly note that, gamma squeezes are market phenomena that can occur under specific conditions. For example, any major announcement or surprise news flow in the market.


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