The gamma squeeze

Every option has two sides. A trader goes long the call; amarket maker is short it. The market maker doesn't want to bet on direction — they earn the bid–ask spread — so they hedge the short call instead of guessing where price goes.

The hedge

The hedge size is the hedge ratio ≈ delta × 100 shares per contract. Sell one out-of-the-money $140 call with a delta of 0.28, and the dealer buys about28 shares to stay neutral.

Now the underlying rises $1. Delta climbs by gamma — say 0.28 → 0.31 — so the dealer must hold 31 shares andbuys 3 more. Multiply that across thousands of contracts and dealers are forced to buy size into a rising market.

It bites hardest when there's a wall of out-of-the-money calls near expiry, where gamma is largest and a fast move forces the most re-hedging. Watching dealer gamma exposure (GEX) by strike is how you see it building before it happens.