A group of Wall Street Bets traders is laying new plans for a ‘gamma squeeze’ on GameStop stock

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Wall Street Bets users have driven up the GameStop stock price REUTERS/Dado Ruvic/Illustration/File Photo
  • A group of traders on Reddit’s WallStreetBets forum is targeting GameStop stock once again.
  • This time, the traders are looking to use the options market to initiate a gamma squeeze on shares.
  • Steve Sosnick of Timber Hill told Insider a gamma squeeze did occur during the last run on GameStop.
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A group of traders on Reddit’s WallStreetBets (WSB) forum is targeting GameStop yet again, laying new plans for a “gamma squeeze” on the stock.

The move comes amid a new rally in GameStop shares, which are up over 150% this week alone.

A user by the name of “KitrosReddit” explained in a post the potential for a “Mother of all short squeezes” on Thursday, garnering over 25,000 upvotes on Reddit’s WallStreetBets forum.

In the post, the WSB member argues that it wasn’t a classic short squeeze that drove GameStop share prices higher in the first Reddit-driven surge, but rather something called a “gamma squeeze”.

And while posts on Reddit are not always backed by empirical evidence, the user made a strong case.

Steve Sosnick, the chief strategist of Interactive Brokers and head trader of its trading unit Timber Hill, sat down with Insider’s Vicky Ge Huang and explained the effects gamma squeezes can have on stocks.

According to Sosnick, when Reddit traders started using call options as a way to leverage their bets on GameStop, they created conditions ripe for a gamma squeeze.

And since GameStop’s short interest is down to around 38% of the float, according to data from S3 partners, a gamma squeeze looks like the only way Reddit traders might be able to cause another monumental jump in GameStop shares.

The traders on the WSB forum also referenced an AI-model used to predict GameStop’s share prices. A trader on Reddit created the AI model and was surprised to see it showed GameStop reaching $US130,000 ($162,880) per share.

According to “KitrosReddit” that is a possibility if GME hits $US800 ($1,002) per share by Friday, because that price would trigger the “Mother of all Gamma Squeezes” as call options sellers would be forced to buy shares to secure a delta hedge.

The scenario is unlikely. The stock would have to rally around 550% in the next day or so just to lay the groundwork, and even then, GameStop at $US130,000 ($162,880) is a lofty target even in the event of the “mother of all squeezes”.

And as the market witnessed in January with the last run on GameStop stock, brokerages and clearinghouses could struggle to support such massive trading volume, and its possible that popular trading apps like Robinhood would restrict certain names once again. 

Regardless of best-laid plans, what is clear is that Reddit is once again driving historic traffic into GameStop stock and call options, with markets bracing for more drama around a group of meme-stocks that dominated headlines in January.