Gamma Squeeze: How Option Hedging Can Push a Stock, and What the SEC Found on GameStop

Michael Whitman · Trading since 2017, full-time since 2020 · Published 2026-09-27

A gamma squeeze is a story about hedging. When a dealer sells a call option, it takes on a bet that the stock will not rise, and the usual way to neutralize that bet is to buy some of the stock. The squeeze is what happens if the amount of stock the dealer needs keeps growing as the price rises.

This page explains the mechanism, runs it on a real Tesla option, measures how much buying the open calls on seven large stocks could force in a worst case, and then looks at GameStop in January 2021, where the SEC’s own staff looked for a gamma squeeze and did not find one.

How it works

A call option gives its buyer the right to buy 100 shares at a set price. The seller, often a market maker, loses money if the stock rises well above that price.

Delta is the hedge size. An option’s delta is how much its price moves for a $1 move in the stock. A call with a delta of 0.50 behaves like 50 shares, so a dealer who sold it can offset the risk by buying 50 shares.

Gamma is how fast the hedge size changes. Gamma measures how much delta shifts when the stock moves $1. When the stock rises, a call’s delta rises, and the dealer who sold it must buy more shares to stay hedged. When the stock falls, the dealer sells.

The loop. If enough calls were sold by dealers who hedge this way, a rise forces buying, the buying lifts the price, and the higher price forces more buying. Two conditions make the loop stronger:

• The calls are near the current price. Gamma is largest for options whose strike is close to where the stock trades.
• The calls are close to expiry. Near its expiry date, an option’s delta can swing from near zero to near one over a small price move, so gamma is concentrated there.

It is different from a short squeeze. In a short squeeze, investors who sold borrowed shares buy them back to close their bets. In a gamma squeeze, the buyers are option dealers adjusting a hedge. The two can happen at the same time in the same stock, which is one reason they are often confused.

A worked example

Take a real contract: the Tesla 16 Oct 2026 $375 call, from Cboe’s delayed chain after the close on 25 Sep 2026. Tesla closed at $372.11. Cboe listed the call with a delta of 0.4968, a gamma of 0.0114, 4,110 contracts of open interest, and a quote of $12.90 bid, $13.00 ask.

1. The starting hedge. One contract covers 100 shares, so a dealer who sold one contract and hedged it would hold 0.4968 × 100 = 49.68 shares.
2. After a $1 rise. Delta rises by about 0.0114, so the hedge needs 0.0114 × 100 = 1.14 more shares per contract.
3. After a 1% rise. 1% of $372.11 is $3.7211, so the extra purchase is 1.14 × 3.7211 = 4.24 shares per contract.
4. Across all 4,110 contracts, if a dealer had sold every one: a hedge of 204,185 shares, then about 4,685 more for each $1 rise, or 17,435 more for a 1% rise.
5. After a $5 rise, a straight-line estimate puts delta at 0.4968 + 5 × 0.0114 = 0.5538. The real figure differs a little, because gamma itself changes as the price moves.

The same strike, different expiry dates. In the same chain the $375 call’s gamma was 0.0425 for the 28 Sep expiry, three days out, against 0.0114 for 16 Oct and 0.0032 for 16 Apr 2027. Per contract, the three-day option asked for about 13 times as much extra buying per $1 as the April one. This is why squeeze stories tend to involve very short-dated calls.

The original data

What could the open calls force? For seven large stocks, the Cboe chain saved after the 25 Sep 2026 close lists every contract’s open interest and Cboe’s gamma. Adding open interest × 100 × gamma across every unexpired call gives the extra shares a hedging dealer would have to buy per $1 rise, if dealers had sold every one of those calls. Multiplying by 1% of the closing price gives the purchase for a 1% rise, set here against the median daily shares traded over the 20 sessions from 28 Aug to 25 Sep 2026.

The table is a worst-case illustration built on stated assumptions, not an estimate of real dealer hedging. It assumes that dealers sold every unexpired open call and investors sold none, that dealers hedge their delta in full and at once, and that Cboe’s gamma holds steady across the 1% move, so the scaling is straight-line. Puts are left out. No public data shows the dealers’ actual positions.

Read the numbers as the calls’ worst case. Some open calls were sold by investors, for example as covered calls, and a dealer who bought those calls is hedged the other way: it sells into a rise. So the true buying these calls forced on 25 Sep was some fraction of these figures, and could have been negative. Puts are a separate question: a dealer who sold puts also buys stock as the price rises, and one who bought puts sells, so the total across calls and puts turns on positions no outside data shows.

Even the worst case is modest in most names. For the median stock of the seven, Amazon, the most the calls could demand for a 1% rise was 13.2% of a normal day’s shares traded, a large amount of stock, but spread over a day that already trades several times as much. The hedging share also shrinks as expiry dates pass: between 37.5% and 53.6% of each stock’s call gamma sat in expiries within 30 days, so much of it was gone by late October. Every row is in the call gamma table.

GameStop, January 2021: what the SEC staff found

GameStop’s rise is one that a gamma squeeze was offered to explain. The SEC staff report gives the prices, as quoted before GameStop’s four-for-one split in 2022. The stock closed at $19.95 on 12 Jan 2021 and $31.40 on 13 Jan, when about 144 million shares traded against about 7 million the day before. On 27 Jan it closed at $347.51, 17.42 times the 12 Jan close, a rise of 1,642% in ten sessions; the report puts the rise from 26 Jan to 27 Jan alone at $199.53, a one-day gain of 134.8%. The next day it reached an intraday high of $483.00, 24.21 times the 12 Jan close. On 22 Jan, the month’s busiest day, 197.2 million shares traded.

Then it fell. The report measures a drop of over 86% from the 28 Jan intraday high to the close at the end of the first week of February; the price was below $100 by 3 Feb and as low as $40.59 by 19 Feb. Indexed to 100 at the 12 Jan close, the 27 Jan close was 1,742. Every session from 4 Jan to 12 Feb, from Yahoo’s split-adjusted daily bars, is in the GameStop table; times four, those closes match every price the SEC report gives.

The SEC staff report of 14 Oct 2021 looked at the options side directly. Its staff “did not find evidence of a gamma squeeze in GME during January 2021.” The report gives the reasons:

• Options trading by individual customers surged, in dollar volume, from $58.5 million on 21 Jan to $563.4 million on 22 Jan and a peak of $2.4 billion on 27 Jan, but the increase came mostly from buying puts, not calls.
• Market makers were buying calls, not writing them. A dealer that buys calls is not forced to buy stock into a rise; it hedges by selling.

The report found a different driver. Buying by traders covering short positions lined up with some of the sharpest rises, but it was a small fraction of all buying, and the staff concluded that positive sentiment, not buying to cover, sustained the weeks-long rise. It is one episode, examined with regulatory data that no outside trader could see at the time.

What a real squeeze would need to show

The call count is not enough. A believable gamma squeeze claim needs four things at once:

• Dealers net short calls, which requires knowing who bought and who sold. Exchanges report open interest, not who holds each side.
• Those calls near the money and near expiry, where the hedge changes fastest.
• Hedging demand that is large next to normal trading, which the table above shows is usually not the case in the largest stocks.
• Buying that arrives with the rise, not a day later, since dealers adjust through the session.

Smaller stocks are where the arithmetic changes. A stock with little daily trading and heavy short-dated call buying can face hedging demand that is a large share of a day’s trading. That is why the claims cluster around meme stocks, and it is also why the claims are hard to check from outside.

When it fails

It fails when the dealers are on the other side. If customers sold the calls and dealers bought them, the hedge is to sell into strength, which dampens a rise. The gamma exposure page covers this dealer-long case in detail. The GameStop report is a documented case of the popular story getting the side wrong.

It fails at expiry. When short-dated calls expire, their gamma disappears, and so does the hedging demand. A rally that relied on it can lose its buyer overnight, and the hedges that were bought are sold again.

It fails when the stock falls. The loop runs in both directions: as the price drops, a dealer short calls sells shares to reduce the hedge, adding to the fall.

And it fails as a trading signal. Large call open interest is visible to everyone, the sign of the dealer position is not, and the stocks where squeezes happen are the ones where moves of 50% in a day cut both ways. None of the figures on this page says where a stock will go next.

Related

Gamma and delta explain the two numbers the squeeze is built from, and the option Greeks page sets them beside the others. Gamma exposure is the market-wide estimate of the same hedging flow.

A short squeeze is the other forced-buying story, and short interest is how it is measured. Meme stocks are where both stories are told most often.

This page is educational, not financial advice. Test every idea on your own charts before risking money.