What You'll Master
- Gamma is the accelerator pedal — it determines how fast delta changes, and thus how much dealers must hedge
- Market makers don't gamble — they're forced to buy shares to stay delta-neutral when you buy calls
- The feedback loop is mechanical — more calls bought → more stock bought → calls worth more → repeat
- Short-dated options are rocket fuel — gamma explodes near expiration, maximizing squeeze potential
- GameStop was textbook gamma — but it required perfect conditions that rarely align
- 0DTE options have changed everything — daily gamma squeezes are now possible
The Day The Machine Broke Itself
January 27, 2021. GameStop opened at $354. By noon, it hit $483 — up 135% in hours.
CNBC was screaming. Reddit was celebrating. Hedge funds were hemorrhaging. Robinhood would halt trading within 24 hours. Congress would hold hearings. A movie would be made.
But here's what most people missed: GameStop didn't squeeze because of a short squeeze. It squeezed because of gamma.
Yes, there were shorts covering. But the real explosion — the truly parabolic, physics-defying move — came from a feedback loop so powerful it forced market makers to buy tens of millions of shares they didn't want.
"When we modeled the delta hedging flows, we realized that retail call buying had created more buying pressure than all the short covering combined. The gamma squeeze was the real story."
— Quantitative Analyst, Major Prime Broker (2021)
This is the story of how a Greek letter most traders ignore became the most powerful force in modern markets.
What Is Gamma, Really? (The Non-Boring Version)
Forget the textbook definition. Here's gamma in English:
Delta tells you how much an option moves when the stock moves $1.
Gamma tells you how much delta itself changes when the stock moves $1.
Think of it like a car:
Delta = Speedometer
How fast you're going right now. "The stock moves $1, my option moves $0.50."
Gamma = Accelerator
How fast your speed changes. "As the stock keeps rising, my delta goes from 0.50 to 0.70 to 0.90..."
High Gamma = Nitrous Oxide
Acceleration on steroids. Near-expiry ATM options have gamma so high, delta can swing from 0.3 to 0.9 in minutes.
Gamma at Expiry = Singularity
At the strike price on expiration day, gamma approaches infinity. Delta is binary — 0 or 100. Pure chaos.
Here's the key insight: When you own options, you own gamma. When you sell options, you're short gamma.
And when market makers sell you options? They're suddenly short gamma. Which means they need to hedge. Which means they need to trade the underlying stock in the same direction the stock is already moving.
The Gamma Spike at Expiration
As options approach expiry, gamma at the ATM strike becomes explosive. A 0DTE option can see its delta swing from 30 to 90 in minutes — forcing dealers to frantically buy shares to hedge.
"Gamma is not just a Greek. It's a multiplier. It takes whatever move is happening and amplifies it. Buy gamma before the move, and you're riding the rocket. Sell gamma, and you're the fuel."
— Options Market Maker
The Dealer Hedging Machine (Why Market Makers Create Squeezes)
Market makers don't care if GameStop is a good company. They don't care about Ryan Cohen's tweets. They're not bullish or bearish. They just want to be delta-neutral.
Here's how it works:
When you buy a call option, the dealer sells it to you. Now they're short the call. If the stock goes up, they lose money. To neutralize this risk, they buy shares of the underlying stock proportional to the option's delta.
Delta 0.40 x 10 contracts x 100 shares/contract = 400 shares they must buy.
Now here's where gamma creates magic:
Stock Rises $5
Your calls go from 0.40 delta to 0.55 delta. Dealer needs to hedge the extra delta. Buys more shares.
More Buying = Stock Rises
All that share buying pushes the stock higher. Other traders see momentum and buy calls too.
More Calls = More Hedging
New call buying forces dealers to buy even more shares. Delta keeps rising. Hedging accelerates.
The Feedback Loop
Buy calls → Dealers buy stock → Stock rises → Delta rises → Dealers buy more stock → Stock rises MORE
This is the gamma squeeze. It's not speculation. It's math. It's mechanics. It's the machine breaking itself.
The Infinite Loop (Until It Breaks)
Each node feeds the next. Retail call buying → Dealer hedging → Stock rises → Delta increases → More hedging needed → Repeat until either sellers emerge or call buying stops.
GameStop Decoded: Anatomy of a Perfect Gamma Squeeze
GameStop wasn't just a meme. It was the most perfectly engineered gamma squeeze in market history. Here's why everything aligned:
140% Short Interest
More shares shorted than existed. Shorts would be forced to buy eventually, adding fuel to any rally.
Retail Army Coordination
WallStreetBets had 8 million members buying calls together. Unprecedented coordinated gamma exposure.
Weekly Options
Short-dated options = maximum gamma. Retail was buying weeklies, supercharging the feedback loop.
Low Float
Only ~50M shares outstanding. A small amount of buying caused massive price impact.
The Timeline of Destruction:
Week of Jan 11
Call volume explodes to 5x normal. Stock doubles. Dealers forced to buy millions of shares. Gamma squeeze begins.
Jan 22 (Friday)
GME closes at $65. Massive gamma exposure at $60 strike. All calls go ITM at once. Dealers panic-buy.
Jan 25-27
Stock goes parabolic. $77 → $147 → $347. Gamma exposure moves to higher strikes. The loop goes exponential.
Jan 28
Robinhood halts buying. Loop breaks instantly. Stock crashes from $483 to $112. Gamma works both ways.
"The gamma exposure on GME in late January was the largest we had ever seen in any single stock. When we calculated the dealer hedging flows, it dwarfed the short covering. This was a gamma squeeze with short squeeze characteristics, not the other way around."
— Options Flow Analyst, SpotGamma
The Robinhood Kill Switch
When Robinhood halted buying, the gamma loop reversed instantly. No new calls = No new hedging = Dealers unwind positions = Stock collapses. The same mechanics that created the rally destroyed it in hours.
Gamma Squeeze Radar: What to Look For
Not every stock can squeeze. The conditions must be precise. Here's your checklist:
Small Float / Low Market Cap
The smaller the supply of shares, the more impact each hedge creates. Look for floats under 50M shares.
High Short Interest
Shorts add rocket fuel. Above 20% short interest means forced buying will compound the gamma effect.
Massive Call Volume
Call-to-put ratio above 3:1, especially in near-dated expirations. Watch for volume spikes 5x+ normal.
OTM Calls Going ITM
When the stock rallies through strikes with heavy open interest, all that gamma activates at once. The "gamma ramp."
The Gamma Ramp Explained:
Running the Ramp
Each bar represents call open interest at that strike. As stock price rises through each strike, all that gamma "activates" — forcing dealers to hedge. The ramp accelerates the move.
Red Flags That a Squeeze Is Building:
Implied Vol Exploding
IV on short-dated calls jumping 50%+ means someone is aggressively buying. Options flow doesn't lie.
Call Skew Inverting
Normally puts are more expensive. When OTM calls become pricier than puts, speculation is extreme.
Open Interest Stacking
Huge OI building at specific strikes just above the current price. Each one is a potential launchpad.
Social Media Frenzy
WSB mentions, Twitter buzz, Discord servers — coordinated buying can create the critical mass needed.
The Dark Side: Gamma Crushes (When Rockets Fall)
Everything we just described works in reverse. And the way down is faster than the way up.
When call buyers disappear:
- No new call buying = No new delta hedging
- Dealers start unwinding their hedges (selling shares)
- As stock falls, delta decreases — dealers sell even more
- Falling stock triggers stop losses, margin calls
- Negative gamma loop takes over
The same dealers who were forced to buy on the way up are forced to sell on the way down. Gamma doesn't care about your diamond hands. It's math.
"Gravity works faster than rockets fly. The unwind of a gamma squeeze is brutal because everyone realizes at the same time that the loop is broken. There are no natural buyers — only forced sellers."
— Volatility Fund Manager
The 0DTE Gamma Bomb
Zero-days-to-expiration options now account for 50%+ of SPX options volume. This concentrates gamma at Friday expirations (and now daily). When the market moves hard on expiration day, the gamma feedback can cause violent intraday swings of 2-3% that have nothing to do with fundamentals.
The New Era: 0DTE and Daily Gamma Squeezes
GameStop was an anomaly. But the 0DTE revolution has made gamma squeezes a daily phenomenon.
In 2019, 0DTE options were exotic. By 2024, they're the most traded options on the planet. SPX has options expiring every single day. And guess what has maximum gamma? Options expiring TODAY.
Daily Expiration
SPX, SPY, QQQ, and many stocks now have options expiring every weekday. Maximum gamma, every day.
Intraday Squeezes
2-3% intraday reversals that have nothing to do with news — just gamma mechanics playing out in hours.
Power Hour Chaos
The last hour before expiration sees gamma at its peak. Dealers frantically hedge. Prices whipsaw.
Algo-Driven Loops
Algorithms now trade gamma exposure in real-time. When models agree, the feedback loops are instant and violent.
What this means for you:
If you're trading indices or major stocks, you're no longer trading fundamentals or even technicals. You're trading in a gamma-dominated market where dealer positioning matters as much as earnings.
Services like SpotGamma, Tradytics, and Unusual Whales now track dealer gamma exposure in real-time. Understanding where dealers are positioned (long gamma vs short gamma) can tell you:
Long Gamma Dealers
Dealers sell rallies, buy dips. Markets tend to be range-bound. Volatility suppressed. "Pinning" at strikes.
Short Gamma Dealers
Dealers chase trends. They buy rallies, sell dips. Breakouts accelerate. Crashes crash harder.
"We used to trade news. Now we trade gamma. Where dealers are positioned determines whether a 1% move becomes a 3% move — or gets faded entirely. If you don't understand dealer gamma, you don't understand why markets move."
— Systematic Macro Trader
Your Rules for the Gamma Age
Know Who Owns Gamma
If you're long options, you're long gamma — you benefit from moves. If you're short options, moves hurt you exponentially.
Respect Expiration Day
Friday (or any expiration day) is when gamma is nuclear. Don't be surprised by outsized moves. Don't fight the mechanics.
Watch Call Skew
When call IV exceeds put IV (rare), speculation is extreme. Squeeze potential is high — but so is the crash risk.
Follow Dealer Positioning
Use gamma exposure data (GEX) to understand whether dealers will amplify or dampen the next move.
Don't Chase Squeezes Late
By the time CNBC covers it, the gamma loop is mature. The unwind is coming. GameStop peaked 24 hours after mainstream attention.
Size for the Unwind
Whatever you put into a gamma trade, assume it can go to zero in a day. The same mechanics that create 500% gains create -90% losses.
The Machine That Eats Itself
Gamma squeezes are not new. But their frequency, violence, and market impact have exploded in the 0DTE era. The options tail now wags the stock dog.
Understanding gamma won't make you rich. But it will help you understand why a stock can go up 30% on no news, why the market reverses hard in the final hour, and why the biggest moves happen when the most options are expiring.
This is the new market microstructure. The Greeks are no longer abstract. They move billions every day.
Welcome to Advanced Options. Now you understand why dealers accidentally create explosions.
"The gamma squeeze is the purest expression of market mechanics overpowering market fundamentals. It's not about value. It's not about earnings. It's about math — and math doesn't care about your opinion."
— The Authors