Glossary

A gamma squeeze is a market phenomenon that occurs when a rapid increase in a stock's price forces market makers to buy more of the underlying stock to hedge their positions in options they've sold.

This usually happens when many call options are purchased, causing the stock's price to rise as market makers try to maintain a delta-neutral position. The result is a self-reinforcing loop that can lead to sharp price increases. 🔄

For example, suppose a heavily shorted stock has a large number of call options purchased. As the stock price rises, market makers must buy more shares to hedge their positions, which in turn further pushes the stock price up, creating a gamma squeeze.

Fun fact: The term "gamma" comes from the options Greek "Gamma," which measures the rate of change of an option's delta relative to the change in the price of the underlying asset. A gamma squeeze highlights the interconnected nature of the options and stock markets. 🎢🤓