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Originally Posted by Zarley
I wonder if regulators will start taking a look a WSB after the GME drama with Citron last week. Volume on friday was almost 3x the number of shares outstanding. It's certainly entertaining to watch.
Until then, I'll keep riding the momentum of whatever they are pumping (with a small portion of my portfolio - just for fun).
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The regulators can't do much about the gamma squeeze, because that's what this is. I don't think it's a short squeeze, and I'll explain what I mean in a second. What could get the authorities involved at this point though, is the hacking of Citron's accounts and trying to take down their website. Obviously, that's not going to draw positive attention. And then you have Left saying that he and his family were threatened, and of course that should rightly draw the attention of the authorities. Disagreeing with someone's investment thesis is one thing, but threats of physical harm are past the line (obviously!). Of course, if there are players who are willfully manipulating the market, and it can be demonstrated, they're going to have an issue.
A gamma squeeze is when there is a run on out of the money calls, and a market maker (who is selling those calls) wants to hedge that risk. So, naturally they buy the underlying stock. When you have a lot of call volume and those calls expire in a short-time frame, the market makers basically have to cover that potential risk, which makes them buy more shares. You can see how that creates a feedback loop pretty quickly...more shares are bought, which drives up the price of the shares and encourages people to buy more out of the money calls and the MM has to buy more shares. I don't want to bore people, but gamma is the rate of change of delta (which is a metric that reflects how "in the money" or "out of the money" an option is. Gamma is the highest right near the strike price. Anwyay, just think of that feedback loop and look at Tesla over the past year or so or GME this past week and you can get a pretty good idea of what's happening.
A short squeeze is when people who are short a stock have to cover. First, just to make sure we're on the same page, to short a stock you borrow the shares, sell them and have to give the lender the shares back. If you bought them at $10 and the go to $5, you replace those shares and make $5 (just ignore the cost to borrow for this). When you get a short squeeze its a case where people have to cover those short positions because the price has risen, and the flurry of those covering short-sellers boosts the prices even more...which is the squeeze.
In the case of GME, I think it's a gamma squeeze (if anyone cares, and sorry if no one does, but I just find these things fascinating). It could become a short squeeze, and maybe there are some elements, but to me this is driven by options.