[Ads-l] gamma squeeze

Baker, John JBAKER at STRADLEY.COM
Mon Feb 1 14:49:48 EST 2021


“Short squeeze” really should be in the OED.  In this context, “short” derives from the verb to sell short, which the OED defines as “to effect a sale of stock or goods which the seller does not at the time possess, but hopes to buy at a lower price before the time fixed for delivery,” and the related adjective short, defined as “Having sold as yet unacquired stock which the seller hopes can be bought at a lower price before the time fixed for delivery.”  (Incidentally, there is an error in the OED, where short A.18.g, the adjective, should cross-reference short C.11, the verb, but instead cross-references unrelated short A.11.)

A short squeeze is financial difficulty experienced by a short seller when the price of the security or commodity sold short then rises, so the short seller then must pay more to purchase the security or commodity and cover the short position.  The price increase also increases the amount of collateral that the short seller must post.  The short seller’s purchases will themselves tend to cause the price of the security or commodity to rise, so when there are many short sellers (as typically is the case in a large market), they can put pressure on each other.  While the current short squeeze is in common stock of GameStop Corp., early references tend to be to trades in commodities.  Here is an example from the St. Louis Post-Dispatch (July 21, 1882) (ProQuest):  “The “Short” Squeeze.  D.P. Rowland & Co. Strike a Snag, But Recover Again” (title).  The text of the article does not use the term “short squeeze,” but does have this description of events:

“The late heavy advances in grain found this firm on the short side, principally in corn.  They met all calls for margin up to yesterday, when with further and heavier demands Mr. Rowland determined to suspend, as he found he could not get in the money due his firm and consequently would be unable to meet all the calls for margin made upon them.”

I had not come across the term “gamma squeeze” until a few days ago, and it seems to be a fairly new term.  It’s a specialized term and probably should not be in general purpose dictionaries like the OED.  It derives from “short squeeze” and from “gamma,” which is a measure of the rate of change in the ratio of the value of an option (or other derivative) to the underlying security or other asset.  (Gamma is also not in the OED, and maybe also doesn’t belong there.)  A gamma squeeze is a short squeeze caused by trades in options, rather than (or, in reality, in addition to) trades in the security or commodity in question.  Here’s the earliest gamma squeeze I immediately see, from the Los Angeles Times (Sept. 8, 2020) (ProQuest):

“”The sheer scale of call buyers both institutional and retail cause a ‘gamma’ squeeze situation for dealers, exacerbating moves in tech,” she [sc. RBC Capital Markets strategist Amy Wu Silverman] wrote in a report Monday.  (“Gamma” is a term for option price drift that dealers often seek to offset by buying or selling the underlying stock.)”


John Baker


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Subject: gamma squeeze

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"short squeeze" is the old lameness
"gamma squeeze" is the new hotness
"pump and dump" is the perennial; soon to regain popularity, I expect

OED does have an entry for the stock market sense of "pump and dump".
It does not have entries for "short squeeze" or "gamma squeeze". This
is specialized vocabulary, but it is becoming more widely known.

An entry for "gamma squeeze" was created for Wikipedia on January 23, 2021‎.
https://en.wikipedia.org/wiki/Gamma_squeeze<https://en.wikipedia.org/wiki/Gamma_squeeze>

Website: The Motley Fool
Article: What Is a Gamma Squeeze?
Author: Chuck Saletta (TMFBigFrog)
Timestamp: Jan 28, 2021 at 12:00PM
https://www.fool.com/investing/2021/01/28/what-is-a-gamma-squeeze/<https://www.fool.com/investing/2021/01/28/what-is-a-gamma-squeeze>

The OED first cite for "pump and dump" is excellent, i.e., I could not
antedate it.

pump
PHRASES P1.

[Begin excerpt]
pump and dump n. Stock Market (originally U.S.) a fraudulent scheme
in which a person or company promotes a low-value stock in order to
profit by selling shares at inflated prices; chiefly attributive.

1988 Wall St. Jrnl. 2 Feb. 1/6 For most promoters, the preferred
scam is ‘pump and dump’—pump up the per-share price with hot air and
hype, then dump the stock on duped investors for immense profits.
[End excerpt]

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