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Is this gamma squeeze what's happening to TWTR today? It looked like options were buoying it up after a massive dive on opening. If that's the game, it gives ev

Is this gamma squeeze what's happening to TWTR today? It looked like options were buoying it up after a massive dive on opening. If that's the game, it gives everyone more time to get short past this news cycle.

rednerrus 6y ago
It's what's driving TSLA's wild growth.
- edoceo 6y ago
  I don't get it, how?
  - kinghajj 6y ago
    1. Retail investors buy TSLA calls. 2. Market makers sell these calls, and so buy TSLA shares to cover their position. 3. Due to #2, TSLA shares appreciate, as well as the calls from #1. 4. Retail investors see all the money being made, and FOMO in to buy more calls; go back to #1, repeat.
    - beezle 6y ago
      TSLA has a pretty small float which is a large part of that.
    - im3w1l 6y ago
      Would this really happen be a relevant dynamic over long time periods? I would assume that at some point the market makers get nervous and stop selling calls?
      - dilyevsky 6y ago
        Why? they have cover and already pocketed fees
      - objektif 6y ago
        It does not have to be long time its up more than 5 folds in the last few months.
        im3w1l 6y ago
        By long time periods I meant > 1 day. Maybe for a few hours some algorithm can do it's thing mindlessly, but then some real person will look at holdings with human judgement and start worrying. But I guess it depends who you think will be doing the marketmaking, and how stupid you think they are.
        colinmhayes 6y ago
        tsla is up 22x in the past year and a half
      - deleted 6y ago
        [deleted]
    - edoceo 6y ago
      Ok, I see so around #3 sell to close? Or do you take the underlying?
      - overcast 6y ago
        Sell to close before expiration, it's usually never worth getting assigned shares.
  - zelly 6y ago
    It's not. Tesla's stock price is driven by supply and demand. Even after a 5-for-1 split, there still is not enough float. Many shareholders are true believers.
- moltenguardian 6y ago
  Unlikely, for the gamma squeeze to work on TSLA, the Market Makers need to hold the shares after the options expire. Otherwise when the options close, they wouldn't need to maintain their exposure. For reasons we don't know, the shares remain high even after the expiration.
maest 6y ago
This may dissapoint you but, with very few exceptions, most of the time nobody knows why a stock is going one way or another on any given day. Unless there's some significant news or M&A deal that you can tie to price action (and even then, you're most likely explaining only part of the price movement), you won't know why a price is moving. There is a whole industry of people adding post-hoc rationalizations to price movements (e.g. CNBC, stock gurus and others). They do it because 1. what they say is not falsifiable in any way and 2. people find idle speculation about money to be exciting.
- enos_feedler 6y ago
  people take comfort in some kind of explanation for the cause of something. It's a bit bizarre, but makes sense. We just sort of accept it because as mentioned above, it's not falsifiable. I think it's right to point out "on any given day". On broader time horizons you can easily figure out why prices move and you can bet on it much easier.
- erik_seaberg 6y ago
  My favorite so far has been > The RSI is trading above 70. This could mean that either the stock is in a lasting uptrend or just overbought and that therefore a correction could shape (look for bearish divergence in this case). The price might go up if it doesn’t go down? Thanks, very helpful.
  - refulgentis 6y ago
    There's concrete predictions laced in there, in the vocabulary of TA, or technical analysis. The self-aware who practice this call it 'horoscopes with funny lines', the premise is drawing trend lines based on different sets of historical data, using that to draw a conclusion about pricing over some time period X, then noting the consequences of the trend line shifting up or down. So, they're predicting both sides of movement because they're interested in the slope of the trendline dividing those sides and the time-frames they're analyzing, not the sides themselves. One example that clarified it for me is a purely degenerate case, the stock went from 1 to 0 over all possible timeframes. In that case, all trendlines are purely vertical, all trendlines are the same for all timeframes, so the fact it can only move up is obvious, and contrasting trendliness is uninteresting. However, in other cases, (say, a small medical research company that has been on the market for a decade but recently produced the singular vaccine for a massive pandemic, but has an expensive and novel manufacturing process that makes it 5x the cost of competitors possible solutions), contrasting trendlines for the last two months versus last decade is very informative for comparing the case in which the vaccine market becomes competitive, versus the monopoly it "is" today. Noting the signal we'll receive about the 'class' of price movement, based on both directions the price could move, is very helpful and necessary for judging the TA after the time period plays out.
jansan 6y ago
Today's price drop was probably caused by some private shareholders selling their shares to punish Twitter for the dick move of banning Trump, combined the increased market risk of having offended 25-50% of the US population.
- AnimalMuppet 6y ago
  Maybe also that Trump's tweets were a significant driver of their traffic, and therefore revenue. Twitter without Trump may in fact be a less valuable company.
  - djtriptych 6y ago
    this is what i thought. His followers will follow him wherever he goes. Probably his own branded services if he's smart (and not in jail etc)
- nly 6y ago
  You realize that selling stock in a company in no way punishes the company right? Once a company IPO's the stock price is really irrelevant to the company unless they want to raise more capital
  - Renevith 6y ago
    It punishes the decision makers at the company, all of whom hold concentrated positions in their company's stock.
freefal 6y ago
No, a gamma squeeze works in the opposite way. The retail investor gets long an option (let's say a put), and the dealer gets short that option. As the price goes down, the retail investor gets shorter (higher chance his put finishes in the money), whereas the dealer gets longer. In general, retail investors don't hedge, whereas dealers do. As the stock price goes down, the dealer needs to sell stock to hedge and avoid getting net long the stock. Thus a gamma squeeze tends to exacerbate rather than mollify volatility.
- qeternity 6y ago
  Not exactly. It depends how the market is positioned. Right now put/call ratios are very low meaning the market is long upside gamma, so when stocks fall, convexity means that market makers hedging decelerates as the market falls, but accelerates as it mean reverts. This gives rise to a phenomenon known as pinning where stocks prices tend to oscillate around strikes with high OI and thus high convexity.
  - ironSkillet 6y ago
    Would you mind explaining the market dynamics in more detail? My understanding is that the positive gamma causes long market makers to put pressure on prices to mean revert, but I don't quite grok the rest of the dynamics.
    - qeternity 6y ago
      Well, it's negative gamma from the MM's perspective (this is ultimately what they're being paid to provide in a purely Black-Scholes sense). It's less about whether gamma is positive or negative because that just depends on which side of the trade you're looking at. The simple reason is that like delta, gamma is also not constant. Gamma is our derivative of delta with respect to underlying, but there exists another measure called speed which is the derivative of gamma with respect to underlying (gamma of gamma). This is normally distributed around the strike price of the option, so as you deviate from the strike, the gamma of an option decreases which means that MM hedging decelerates as you move away from the strike. It also means that MM hedging accelerates as you approach the strike. Convexity cuts both ways. Let's say a MM is short a $100 call in some asset X. When we are below $100, any move towards $100 means we have to buy increasing amounts of X in order to remain delta neutral. This pushes prices towards $100. But as we move through $100 this force decelerates. So let's presume that market momentum takes us to $110, at this point, a $1 drop to $109 results in more selling than an increase to $111 results in buying. These forces can become self fulfilling whereby the selling that we have to do when we drop from $110 to $109 contributes to downward pressure and pushes us to $108. And recall that our hedging accelerates as we move towards the strike. So we have to sell even more now than we did before, which further contributes to downward momentum. This pressure peaks at $100 at which point is starts to decelerate again, providing a natural tendency to revert to high OI strikes where there is substantial outstanding gamma.
totalZero 6y ago
TWTR sold off because Trump is their biggest attraction. Note that they put out the news of his ban after 4pm on Friday, which is what companies do when they fear the market's reaction. Trump's use of Twitter to rally the hordes has been a major factor in his ability to motivate and steer public unrest. His absence from Twitter is going to have an impact on the platform's engagement numbers and public relevance. Meanwhile, Wednesday's insurrection is another piece of evidence that S230 isn't sufficient to foster a healthy public conversation. Twitter's reluctance to silence Trump in the past four years alienates the Left, while their decision to do so last week alienates the Right. Trump's absence from the platform disengages both groups, as well as whatever paid propaganda apparatus exists to bolster certain ideas on Twitter.

rednerrus 6y ago

It's what's driving TSLA's wild growth.

edoceo 6y ago
I don't get it, how?
- kinghajj 6y ago
  1. Retail investors buy TSLA calls. 2. Market makers sell these calls, and so buy TSLA shares to cover their position. 3. Due to #2, TSLA shares appreciate, as well as the calls from #1. 4. Retail investors see all the money being made, and FOMO in to buy more calls; go back to #1, repeat.
  - beezle 6y ago
    TSLA has a pretty small float which is a large part of that.
  - im3w1l 6y ago
    Would this really happen be a relevant dynamic over long time periods? I would assume that at some point the market makers get nervous and stop selling calls?
    - dilyevsky 6y ago
      Why? they have cover and already pocketed fees
    - objektif 6y ago
      It does not have to be long time its up more than 5 folds in the last few months.
      - im3w1l 6y ago
        By long time periods I meant > 1 day. Maybe for a few hours some algorithm can do it's thing mindlessly, but then some real person will look at holdings with human judgement and start worrying. But I guess it depends who you think will be doing the marketmaking, and how stupid you think they are.
      - colinmhayes 6y ago
        tsla is up 22x in the past year and a half
    - deleted 6y ago
      [deleted]
  - edoceo 6y ago
    Ok, I see so around #3 sell to close? Or do you take the underlying?
    - overcast 6y ago
      Sell to close before expiration, it's usually never worth getting assigned shares.
- zelly 6y ago
  It's not. Tesla's stock price is driven by supply and demand. Even after a 5-for-1 split, there still is not enough float. Many shareholders are true believers.
moltenguardian 6y ago
Unlikely, for the gamma squeeze to work on TSLA, the Market Makers need to hold the shares after the options expire. Otherwise when the options close, they wouldn't need to maintain their exposure. For reasons we don't know, the shares remain high even after the expiration.

maest 6y ago

This may dissapoint you but, with very few exceptions, most of the time nobody knows why a stock is going one way or another on any given day. Unless there's some significant news or M&A deal that you can tie to price action (and even then, you're most likely explaining only part of the price movement), you won't know why a price is moving. There is a whole industry of people adding post-hoc rationalizations to price movements (e.g. CNBC, stock gurus and others). They do it because 1. what they say is not falsifiable in any way and 2. people find idle speculation about money to be exciting.

enos_feedler 6y ago
people take comfort in some kind of explanation for the cause of something. It's a bit bizarre, but makes sense. We just sort of accept it because as mentioned above, it's not falsifiable. I think it's right to point out "on any given day". On broader time horizons you can easily figure out why prices move and you can bet on it much easier.
erik_seaberg 6y ago
My favorite so far has been > The RSI is trading above 70. This could mean that either the stock is in a lasting uptrend or just overbought and that therefore a correction could shape (look for bearish divergence in this case). The price might go up if it doesn’t go down? Thanks, very helpful.
- refulgentis 6y ago
  There's concrete predictions laced in there, in the vocabulary of TA, or technical analysis. The self-aware who practice this call it 'horoscopes with funny lines', the premise is drawing trend lines based on different sets of historical data, using that to draw a conclusion about pricing over some time period X, then noting the consequences of the trend line shifting up or down. So, they're predicting both sides of movement because they're interested in the slope of the trendline dividing those sides and the time-frames they're analyzing, not the sides themselves. One example that clarified it for me is a purely degenerate case, the stock went from 1 to 0 over all possible timeframes. In that case, all trendlines are purely vertical, all trendlines are the same for all timeframes, so the fact it can only move up is obvious, and contrasting trendliness is uninteresting. However, in other cases, (say, a small medical research company that has been on the market for a decade but recently produced the singular vaccine for a massive pandemic, but has an expensive and novel manufacturing process that makes it 5x the cost of competitors possible solutions), contrasting trendlines for the last two months versus last decade is very informative for comparing the case in which the vaccine market becomes competitive, versus the monopoly it "is" today. Noting the signal we'll receive about the 'class' of price movement, based on both directions the price could move, is very helpful and necessary for judging the TA after the time period plays out.

jansan 6y ago

Today's price drop was probably caused by some private shareholders selling their shares to punish Twitter for the dick move of banning Trump, combined the increased market risk of having offended 25-50% of the US population.

AnimalMuppet 6y ago
Maybe also that Trump's tweets were a significant driver of their traffic, and therefore revenue. Twitter without Trump may in fact be a less valuable company.
- djtriptych 6y ago
  this is what i thought. His followers will follow him wherever he goes. Probably his own branded services if he's smart (and not in jail etc)
nly 6y ago
You realize that selling stock in a company in no way punishes the company right? Once a company IPO's the stock price is really irrelevant to the company unless they want to raise more capital
- Renevith 6y ago
  It punishes the decision makers at the company, all of whom hold concentrated positions in their company's stock.

freefal 6y ago

No, a gamma squeeze works in the opposite way. The retail investor gets long an option (let's say a put), and the dealer gets short that option. As the price goes down, the retail investor gets shorter (higher chance his put finishes in the money), whereas the dealer gets longer. In general, retail investors don't hedge, whereas dealers do. As the stock price goes down, the dealer needs to sell stock to hedge and avoid getting net long the stock. Thus a gamma squeeze tends to exacerbate rather than mollify volatility.

qeternity 6y ago
Not exactly. It depends how the market is positioned. Right now put/call ratios are very low meaning the market is long upside gamma, so when stocks fall, convexity means that market makers hedging decelerates as the market falls, but accelerates as it mean reverts. This gives rise to a phenomenon known as pinning where stocks prices tend to oscillate around strikes with high OI and thus high convexity.
- ironSkillet 6y ago
  Would you mind explaining the market dynamics in more detail? My understanding is that the positive gamma causes long market makers to put pressure on prices to mean revert, but I don't quite grok the rest of the dynamics.
  - qeternity 6y ago
    Well, it's negative gamma from the MM's perspective (this is ultimately what they're being paid to provide in a purely Black-Scholes sense). It's less about whether gamma is positive or negative because that just depends on which side of the trade you're looking at. The simple reason is that like delta, gamma is also not constant. Gamma is our derivative of delta with respect to underlying, but there exists another measure called speed which is the derivative of gamma with respect to underlying (gamma of gamma). This is normally distributed around the strike price of the option, so as you deviate from the strike, the gamma of an option decreases which means that MM hedging decelerates as you move away from the strike. It also means that MM hedging accelerates as you approach the strike. Convexity cuts both ways. Let's say a MM is short a $100 call in some asset X. When we are below $100, any move towards $100 means we have to buy increasing amounts of X in order to remain delta neutral. This pushes prices towards $100. But as we move through $100 this force decelerates. So let's presume that market momentum takes us to $110, at this point, a $1 drop to $109 results in more selling than an increase to $111 results in buying. These forces can become self fulfilling whereby the selling that we have to do when we drop from $110 to $109 contributes to downward pressure and pushes us to $108. And recall that our hedging accelerates as we move towards the strike. So we have to sell even more now than we did before, which further contributes to downward momentum. This pressure peaks at $100 at which point is starts to decelerate again, providing a natural tendency to revert to high OI strikes where there is substantial outstanding gamma.

totalZero 6y ago

TWTR sold off because Trump is their biggest attraction. Note that they put out the news of his ban after 4pm on Friday, which is what companies do when they fear the market's reaction. Trump's use of Twitter to rally the hordes has been a major factor in his ability to motivate and steer public unrest. His absence from Twitter is going to have an impact on the platform's engagement numbers and public relevance. Meanwhile, Wednesday's insurrection is another piece of evidence that S230 isn't sufficient to foster a healthy public conversation. Twitter's reluctance to silence Trump in the past four years alienates the Left, while their decision to do so last week alienates the Right. Trump's absence from the platform disengages both groups, as well as whatever paid propaganda apparatus exists to bolster certain ideas on Twitter.