Let’s talk about one of the most corrupt but brilliant things I have seen in a while. I’m talking about the BBBY short squeeze. We can all remember the GME short squeeze that was made into a movie. Well, this one is almost the same thing playing out again.
The difference is, and I’ve always thought this, it’s not retail Apes that are behind big moves. It’s actually the large funds that smell the blood of other funds in the water. Take a look at this money manager:
Ryan Cohen bought a tonne of BBBY stock a few months ago, then bought tonnes of OTM calls which helped pump the stock 400% (he was also the chairman of GME). Then he’s out all of it in one day. Incredible, corrupt, and brilliant. Now it’s not just him; there’s definitely a lot more big money funds behind such a move and hundreds of little apes.
This strategy is known as a Gamma Squeeze, we’ve seen it time and time again in stocks like TSLA, GME, AMC, and now BBBY. Let me break down how sometimes, large funds and a few little apes can break the market makers.
Now how can you spot a Gamma Squeeze?
An Unusual Options scanner such as the one Ben Sturgill uses called Dollar Ace spots unusual call options buying. This type of scanner can help you spot a Gamma Squeeze and understand when one might occur. At the very least, it may stop you from getting short naked and blowing up your account when the whales are buying huge amounts of calls.
Try Dollar Ace for just $5 for your first month Today. Sign up here.
Or get the complete Scanner Suite Today, and be prepared when the next big Short Squeeze Happens.
Conditions for a Gamma Squeeze
For a Gamma Squeeze to occur, certain conditions must be present. A Gamma Squeeze is a short squeeze but on steroids.
- First, we need a high short interest in a stock.
For a squeeze to occur, sure market participants must be stuck, in this case, stubborn shorts. A squeezing stock can continue to do so until stubborn shorts can no longer take the pain and are forced out of their position.
Short interest of over 10% gets my interest, but anything close to 30% or above can fuel a significant move. Per Finviz BBBY had a short interest of over 40%.
The Squeeze Scanner filters stocks that are squeezing and filters by Short Interest. Don’t miss the next short squeeze.
Get the Scanner Suite Today, and be prepared when the next big Short Squeeze Happens.
- Second, we need options activity.
A Gamma squeeze is also fueled by options activity— this is what gives the short squeeze added “juice”.
It works like this: People who are short the stock hedge their positions by buying out-of-the-money call options sold to them by market makers. In normal conditions, the smart money has every incentive to have the options they sold expire worthless to pocket the premium.
For the most part, they can do this. After all, if they are the house and well, the house should win most of the time. The fun starts when the smart money gets trapped, and a vicious cycle ensues.
A Vicious Cycle
Occasionally, when there is so much demand for a stock, market makers who sell options end up fueling the rally. How?
Well, when huge funds and hundreds of Apes start to buy way out of the money call options, the market makers who sold them begin to lose money as the stock price goes against them.
To protect themselves from ruin, they buy stock to hedge their positions. This adds even more demand sending the stock price even higher. This process continues until the price rise is no longer sustainable, and the big boys start to sell, after blowing up as many stuck shorts as they can.
As we can see, RC Venture LLC,i.e. Ryan Cohen, played the game perfectly, probably pocketing hundreds of millions of dollars in the process.
Now how can you spot a Gamma Squeeze?
An Unusual Options scanner such as the one Ben Sturgill uses called Dollar Ace spots unusual call options buying. This type of scanner can help you spot a Gamma Squeeze and understand when one might occur. At the very least, it may stop you from getting short naked and blowing up your account when the whales are buying huge amounts of calls.
Try Dollar Ace for just $5 for your first month Today. Sign up here.
Or get the complete Scanner Suite Today and be prepared when the next big Short Squeeze Happens.
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