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While a short squeeze can involve options buying, the squeeze in the stock’s price is typically caused by buying pressure on the underlying stock. a short squeeze?Ī short squeeze deals primarily with short sellers buying up shares of the stock to close out their short position. This results in a cascading wave of buying pressure for the stock, which of course, leads to a major surge in the price. As they buy more call options, market makers have to buy even more shares. At the same time, short-sellers also buy out-of-the-money call options to hedge against their own short position. When call options are bought, market makers are forced to buy shares to hedge against a potential squeeze. In the case of a gamma squeeze, traders can buy call option contracts to force the hand of market makers and short sellers. If the price of the stock is below the strike price, the call options will expire worthless. If the price of the underlying stock meets that specific price, or strike price, by the expiration date of the call option the trader can either exercise the option or sell the contract for premiums. When a trader buys a call option contract for a stock, they are anticipating that the stock price will rise to a specific price by a specific date. To understand a gamma squeeze a preliminary knowledge of options trading definitely comes in handy. The delta is the change in price of the option contract given a $1.00 change in price for the underlying stock. The term gamma refers to a rate of change in the price of the delta of an option contract. A gamma squeeze is a rapid escalation of a stock’s price, due to a large amount of call option buying for the underlying stock. If we take a short squeeze one step further, we get the gamma squeeze. By now we’ve all heard about what a short squeeze is and how they happen in the stock market.