Gamma Squeeze
A self-reinforcing rally caused by options dealers hedging short-gamma positions, forcing more underlying buying as price rises.
Definition
When dealers are short gamma (typically having sold calls), rising prices force them to buy more underlying to remain delta-neutral. That buying pushes prices higher, forcing more buying — a positive feedback loop.
Gamma squeezes are most violent in single names with concentrated option volume (the 2021 GameStop episode) but also occur in indices around large structured-product expiries.
Why it matters
Gamma squeezes generate price moves that fundamental analysis can't explain. Recognizing one early is critical to avoiding short squeezes.
Worked example
January 2021 GameStop: dealer short-call gamma forced ~$30B of underlying buying as price rose from $20 to $480. Recovery to fundamentals took months.
Frequently asked
How do you spot a gamma squeeze setting up?⌄
Can it happen on the downside?⌄
Why are 0DTE options relevant?⌄
How long does a squeeze last?⌄
Related terms
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