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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 d

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.
audiometry 5y ago
There is no question that negative gamma can accelerate nasty moves (at least in commodities where I’m involved). Maybe what you mean is negative gamma that is given to people as a “trap” and then the exploiter pushes the market towards the calls intentionally. That might be harder to do (would take tremendous might in any large market, like oil). Where negative gamma occurs more often is, for example, Oil producers buy tons of puts from banks, the market weakens and oil goes down, and the banks are forced to delta hedge their position aggressively. This isn’t a trap set by producers, it’s just the market positioning. Our adage is “the market goes to whatever level fucks the most people”.
- kevstev 5y ago
  Yeah I mean the effects of gamma aren't controversial, but the whole concept of being able to move the market with social media posts to force it to skyrocket, that is more dubious to me. The GME stuff was essentially as far as that concept has ever been taken, and that particular scenario didn't play out- so while theoretical, I don't think this is a real thing with any significant effects. The whole thing about manipulating financial markets for "lols" is just kind of strange to me- and it all feels very dishonest. I have been on WSB for years and occasionally look at stocktwits, and while it used to be mostly harmless, a lot of loss/gain porn, a lot of bad insight, but the occasional nugget of some solid research... it just feels sinister these days. Are these guys really in it for the lols... or secretly hoping to get rich and keeping an eye on their internet friends to ensure they get out before their friends do? In general though, its not really clear to me who on these financial forums are the manipulators, the manipulated, or just truly clueless. But it's all just kind of upsetting, as it becomes clearer that the internet is spiraling towards ever increasing manipulation.

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.

audiometry 5y ago

There is no question that negative gamma can accelerate nasty moves (at least in commodities where I’m involved). Maybe what you mean is negative gamma that is given to people as a “trap” and then the exploiter pushes the market towards the calls intentionally. That might be harder to do (would take tremendous might in any large market, like oil). Where negative gamma occurs more often is, for example, Oil producers buy tons of puts from banks, the market weakens and oil goes down, and the banks are forced to delta hedge their position aggressively. This isn’t a trap set by producers, it’s just the market positioning. Our adage is “the market goes to whatever level fucks the most people”.

kevstev 5y ago
Yeah I mean the effects of gamma aren't controversial, but the whole concept of being able to move the market with social media posts to force it to skyrocket, that is more dubious to me. The GME stuff was essentially as far as that concept has ever been taken, and that particular scenario didn't play out- so while theoretical, I don't think this is a real thing with any significant effects. The whole thing about manipulating financial markets for "lols" is just kind of strange to me- and it all feels very dishonest. I have been on WSB for years and occasionally look at stocktwits, and while it used to be mostly harmless, a lot of loss/gain porn, a lot of bad insight, but the occasional nugget of some solid research... it just feels sinister these days. Are these guys really in it for the lols... or secretly hoping to get rich and keeping an eye on their internet friends to ensure they get out before their friends do? In general though, its not really clear to me who on these financial forums are the manipulators, the manipulated, or just truly clueless. But it's all just kind of upsetting, as it becomes clearer that the internet is spiraling towards ever increasing manipulation.