Gamma Squeeze Explanation: The Basics of Option Theory and How It Works

 

What does Gamma Squeeze mean?

After selling call options on a particular stock, market makers who are exposed to negative (short) gamma and negative (short) delta may experience a gamma squeeze.

Let’s simplify this as it can all sound confusing:

Delta – this shows the anticipated change in an option’s price in reaction to a $1 change in the underlying stock price. Because the option’s price would increase in tandem with an increase in stock price (delta), a positive delta denotes a long position in the market, whilst a negative delta denotes a short position.

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