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a conspiracy theory going around is that Bill was pumping up stocks that he and Cathie (ARKK) were buying through the use of “gamma squeeze”, ie buying far out

a conspiracy theory going around is that Bill was pumping up stocks that he and Cathie (ARKK) were buying through the use of “gamma squeeze”, ie buying far out of the money call options. An example of how this works is let’s say Tesla is trading at $500. You purchase call options to buy TSLA at $1,000 that expire in two days. These options are super cheap because the idea that TSLA will double in two days is ludicrous. But the market makers who sold you the call option have to buy TSLA shares to hedge their risk, driving TSLA’s price up, and costing you much less to do it than just buying TSLA shares directly. This theory is mostly advanced by short sellers who were betting against some of Cathie and Bills key positions. It started with GSX, where widely circulated short research demonstrated compelling evidence it was a fraud. Yet it kept going up for months after, and didn’t collapse until Bills fund did (Cathie did not own it AFAIK). So they have pointed to a weird set of far OOM calls being bought right before expiration on other Cathie positions like Tesla during their big runs. And that since Bill Hwangs collapse they are all down sharply. It sounds intriguing but could easily be coincidence. ARKK is down over 30% in last few months, but that was likely inevitable. If there was a magic gamma squeeze technique for keeping high fliers airborne she clearly isn’t using it. She’s stuck with concentrated bets in some illiquid positions of dubious value, and as her investors sell she will be forced to sell her positions in enough volume to crush their prices worse, driving ARKK down furth forcing more redemptions in an un-virtuous circle that ends very badly.

kevstev 5y ago
FWIW I never heard the term "Gamma Squeeze" until it was thrown around in context of GME. I used to work in Options Market Making. I am not saying the concept didn't exist, but this seems largely an idea that has never proven itself in reality. I am not saying I am the end authority on this, but personally I would look VERY closely at anyone throwing these terms around. Google trends shows virtually zero mentions of the term until recently: https://trends.google.com/trends/explore?date=all&geo=US&q=Gamma%20Squeeze https://trends.google.com/trends/explore?date=all&geo=US&q=G... Frankly, the amount of misinformation being thrown around in forums like WSB these days is shocking to me. Its like the same people that realized they could easily distort views on the political system realized that was small game compared to getting rich off pump and dumps.
- valuearb 5y ago
  Yea, this theory isn't a WSB theory though they may have coined the "Gamma Squeeze" term. The shorts are mostly FinTwit types on Twitter. What about the tactic though? As someone who understands this better than most, does it make sense that buying way out of the money calls on a stock like Tesla are a cheap way to goose it's share price higher? I don't understand all the nuts and bolts of market making, but it seems weird to me that a MM would buy even 1 share in Tesla because someone spent $10 to buy a $1000 strike price contract the day before it expires.
  - Traster 5y ago
    Not the person you were replying to, but broadly, Market makers delta hedge in the future. What this means is you take your option, you figure out how much the price depends on the future, and that's your delta. An at the money option will have a delta close to 1 - ie, if the future moves $1, the option price will basically move $1 too. So I can hedge my exposure to the option I just bought or sold by just buying or selling the same amount of the future in the opposite direction. A far out of the money option will have a delta close to 0, it's price isn't going to move much when the future moves since it's still incredibly unlikely to come into the money and actually be worth exercising. So in order to hedge an option, the market maker only has to buy a tiny tiny amont of future to hedge the delta (or may not even hedge because they're willing to take some exposure to delta for some period of time, or their net delta position due to other options they've bought or sold cancels it out). So the plan of "I'll buy these super out of the money options to force market makers to hedge" doesn't make a lot of sense - since for each option you buy the market maker only has to buy a tiny tiny amount of futures, and you could be buying 100 call options and find that all your purchases have been cancelled out by the market maker buying a single call at the money - not even touching the future. Now if the out of the money call options are cheap enough it could be more effective against the price that just buying the future, but that's incredibly unlikely, market makers aren't stupid and for these extremely out of the money options they're probably already charging a premium since they're difficult to accurately price. Meanwhile, is the price of the underlying the only thing that causes the price to change? No. Gamma (or the value of the time between when you bought and the time to expiry) is a compenent, that's going to collapse coming into the last days of the option so you're paying for that. Volatility also effects the price, and you're probably paying a premium for protection against volatility that you're actually hoping against.
grey-area 5y ago
I have no idea about that, but it does concern me they'd accept money from someone convicted of fraud, who has now been implicated in two massive fund collapses caused by excessive leverage. Past that I have no idea what caused the massive pump of ARK held stocks and the subsequent inevitable reversal (still going on), but I don't really need more than that to distrust them.

kevstev 5y ago

FWIW I never heard the term "Gamma Squeeze" until it was thrown around in context of GME. I used to work in Options Market Making. I am not saying the concept didn't exist, but this seems largely an idea that has never proven itself in reality. I am not saying I am the end authority on this, but personally I would look VERY closely at anyone throwing these terms around. Google trends shows virtually zero mentions of the term until recently: https://trends.google.com/trends/explore?date=all&geo=US&q=Gamma%20Squeeze https://trends.google.com/trends/explore?date=all&geo=US&q=G... Frankly, the amount of misinformation being thrown around in forums like WSB these days is shocking to me. Its like the same people that realized they could easily distort views on the political system realized that was small game compared to getting rich off pump and dumps.

valuearb 5y ago
Yea, this theory isn't a WSB theory though they may have coined the "Gamma Squeeze" term. The shorts are mostly FinTwit types on Twitter. What about the tactic though? As someone who understands this better than most, does it make sense that buying way out of the money calls on a stock like Tesla are a cheap way to goose it's share price higher? I don't understand all the nuts and bolts of market making, but it seems weird to me that a MM would buy even 1 share in Tesla because someone spent $10 to buy a $1000 strike price contract the day before it expires.
- Traster 5y ago
  Not the person you were replying to, but broadly, Market makers delta hedge in the future. What this means is you take your option, you figure out how much the price depends on the future, and that's your delta. An at the money option will have a delta close to 1 - ie, if the future moves $1, the option price will basically move $1 too. So I can hedge my exposure to the option I just bought or sold by just buying or selling the same amount of the future in the opposite direction. A far out of the money option will have a delta close to 0, it's price isn't going to move much when the future moves since it's still incredibly unlikely to come into the money and actually be worth exercising. So in order to hedge an option, the market maker only has to buy a tiny tiny amont of future to hedge the delta (or may not even hedge because they're willing to take some exposure to delta for some period of time, or their net delta position due to other options they've bought or sold cancels it out). So the plan of "I'll buy these super out of the money options to force market makers to hedge" doesn't make a lot of sense - since for each option you buy the market maker only has to buy a tiny tiny amount of futures, and you could be buying 100 call options and find that all your purchases have been cancelled out by the market maker buying a single call at the money - not even touching the future. Now if the out of the money call options are cheap enough it could be more effective against the price that just buying the future, but that's incredibly unlikely, market makers aren't stupid and for these extremely out of the money options they're probably already charging a premium since they're difficult to accurately price. Meanwhile, is the price of the underlying the only thing that causes the price to change? No. Gamma (or the value of the time between when you bought and the time to expiry) is a compenent, that's going to collapse coming into the last days of the option so you're paying for that. Volatility also effects the price, and you're probably paying a premium for protection against volatility that you're actually hoping against.

grey-area 5y ago

I have no idea about that, but it does concern me they'd accept money from someone convicted of fraud, who has now been implicated in two massive fund collapses caused by excessive leverage. Past that I have no idea what caused the massive pump of ARK held stocks and the subsequent inevitable reversal (still going on), but I don't really need more than that to distrust them.