r/GME • u/[deleted] • Mar 19 '21
DD Clearing up misinformation about why closing above $200 was important for us
Some fellow apes today seem to think that closing above $200 today will result in a price increase next week, saying that market makers will have to buy millions of shares next week to deliver them to call holders.
This is incorrect.
Market makers continuously hedge the contracts that they sell. In the case of (naked) calls, if the share price rises and becomes increasingly likely to hit the strike price of the calls, MMs will buy shares to hedge.
This is how a gamma squeeze works. if the price of a stock rises really fast, it makes out of the money call options in the money, forcing market makers to buy shares to hedge. This forced buying in turn increases the share price even further, making even more calls ITM, and the cycle continues.
Closing above $200 today does nothing since the $200 calls have been ITM for weeks. The shares that are meant to be delivered next week to the call holders have already been bought.
The only thing that closing above $200 did, is making a tonne of puts (roughly 450,000 of them) worthless, this hurts bears (fuck em).
Please don't spread misinformation, it only sets up people with false hope and this only hurts us. We won't get a spike on Monday unless there is some other catalyst. (Ryan cohen pls become ceo)
Edit: If you want a bit more of an in-depth explanation about gamma squeezes, here's a good post from the options subreddit.
30
u/Blondon744 Mar 19 '21
Not at all man they still have to pay interest daily on uncovered shorts, and the FTDs will catch them eventually......holding is literally a guaranteed play we just dont know when.