What is a gamma squeeze?

A feedback loop in the hedging, not a conspiracy in the order book

A gamma squeeze is what happens when dealer hedging stops damping a move and starts feeding it. It is a mechanical consequence of who is holding which side of the options, not a strategy anyone runs.

The setup: customers buy calls in size. The dealers who sold those calls are now short gamma — as the index rises, the calls they are short gain delta faster and faster, so their hedge falls further behind with every tick. To stay flat they must buy the underlying. That buying lifts the index, which increases the delta again, which forces more buying. The hedge chases the market it is moving.

Run the same loop downward and it is the identical mechanism: dealers short gamma sell into weakness, which deepens the weakness. "Squeeze" is the name it gets on the way up; the amplification is symmetric.

What has to be true for one to happen

• Dealers must be net short gamma — the index has to be on the amplifying side of the zero-gamma flip. Above it, in positive gamma, the same flow does the opposite and pins price instead.
• The position must be concentrated near spot. Gamma is largest at the money and decays quickly away from it. Open interest 5% out of the money contributes almost nothing to the loop.
• Time must be short. Gamma per contract rises sharply as expiry approaches, which is why the effect is so associated with 0DTE — and why it can evaporate at the close.

Why the index version is milder than the single-stock one

The famous squeezes are single stocks, where the options market is large relative to the float and a hedging dealer can be a meaningful share of the day's volume. SPX is the opposite: the hedging happens in a futures market deep enough to absorb it. The feedback is real and measurable, but it moves ranges rather than gapping the tape.

What we measured

Rather than assert it, we tested it. The sign of dealer gamma does predict how far the index travels — negative-gamma sessions really do run wider than positive-gamma ones — and the effect survives the obvious objection that it is just the leverage effect in disguise. But note what that says and does not say: it predicts range, not direction. Nothing in the measurement tells you which way a short-gamma session breaks. A rule that traded the sign of a public net-gamma feed came out null.

Related: what gamma exposure is, how dealers actually hedge, and the live SPX gamma terminal where the sign is printed every second.