A gamma squeeze is a rapid upward move in a stock that can be amplified by activity in the options market. It usually occurs when many traders buy call options and market makers or other options dealers need to hedge their exposure by purchasing the underlying shares. As the stock price rises, the options can become more sensitive to further price changes, increasing the amount of shares dealers may need to buy. This additional demand can push the stock even higher, creating a feedback loop.

The term “gamma” comes from an options Greek that measures how quickly an option’s delta changes as the underlying asset moves. When dealers have significant exposure to options with high gamma, relatively small changes in the stock price can require frequent adjustments to their hedges. If those adjustments involve buying more shares as the price rises, they can contribute to strong upward momentum.

Gamma squeezes are often associated with heavy call-option activity, high trading volume, rising implied volatility, and concentrated options positioning around particular strike prices. However, not every surge in call buying creates a gamma squeeze. The impact depends on factors such as dealer positioning, option expiration, strike prices, liquidity, and the size of the underlying stock market.

A gamma squeeze can sometimes contribute to a short squeeze. If rising prices force short sellers to close losing positions, their purchases can add another source of demand and accelerate the move.

For traders, gamma squeezes can create significant opportunities but also substantial risks. Prices may rise extremely quickly and reverse just as sharply. Understanding options positioning, market liquidity, volatility, and risk management is therefore essential before attempting to trade a potential gamma squeeze.