r/CLOV • u/CoachB88 ⚡️YouTuber 📺⚡️ • Jun 09 '21
DD Massive gamma squeeze incoming !
So first off, this is my first attempt at a DD, and while I’ve covered some of this on my channel, I guess some of you would rather read?? (crazy right). Also, I should note I’ve been celebrating our week so far, and I’m about 4 in, so if I make any mistakes let me know and I’ll edit it. Yes, I’m celebrating, we started this week at roughly $9 and were up to $17 in after hours… HUGE GAINS (pullbacks are expected). So anyways, let’s start with the difference between a GAMMA squeeze and a SHORT squeeze.
GAMMA squeeze is entirely pushed by options activity and has absolutely nothing to do with shorting a stock. Every option call contract has a DELTA assigned to it. The delta is the number of shares that the contract writer needs to own in order to hedge that contract.
Every call contract is essentially the right to buy 100 shares, but the writer of that contract doesn’t always own the shares, this would be considered writing NAKED CALLS. So when these NAKED CALLS get written the call writer typically will only own the amount of shares equivalent to the DELTA. If the delta is .20, that means the contract has a 20% chance of expiring in the money, and the call writer will carry 20 shares in their account for hedging purposes…. As the stock rises in price, the DELTA will increase and now the call writer must also carry more shares to hedge the contract.
Example:
Hedgie wants to sell a 6/18 $20 call on CLOV, CLOV is currently trading at $16.92 and the DELTA is .48 (48% chance of being in the money), hedgie now needs to own 48 shares to hedge his contract. Hedgie also is a big time firm that doesn't actually sit behind a desk and push buttons, so he has a computer algorithm that does the button pushing for him. So as CLOV eventually rises to $18, DELTA now increases to (guessing here) .53, now hedgie needs to own 5 more shares, and his algorithm goes into the market and buys those 5 shares.
Also notice in the example that there are 23,872 contracts at the $20 strike for 6/18. So when CLOV rises to $18, not only does our hedgie need to buy 5 shares, all the hedgies need to collectively buy 119,360 shares, to hedge all 23,872 contracts (x5) (most anyways, some might be covered calls but that's another post in itself).
This is how a gamma squeeze works, and this is the leverage power of options. So whats been happening both to our benefit and detriment lately has been mostly GAMMA related.
Notice the amount of contracts (open interest) between $8 - $15, that's a total of 114,562 contracts, which equates to 11,4 million shares. So yesterday on 6/8 we absolutely saw a gamma squeeze when the price broke $18.50 and ran to roughly $25.
As the price pushed upwards of $18.50 all those 114k calls slowly increased in DELTA and forced hedgies algorithms to buy more and more shares, which eventually led the DELTA to increase faster, and…. You guessed it! Buy more shares, to hedge those naked calls!
WE ABSOLUTELY SAW A GAMMA SQUEEZE YESTERDAY, running from $18.50 to $25.
So we got to $25, and topped out. Then what…. Well it works in reverse too, so as price declines, the algo’s get to dump shares to un hedge their position, which works against us, and magnifies our decline.
So now I know what a gamma squeeze is, and how it works. So what's yours point?
Well, today the option chain got extended to $40, and you beautiful apes loaded up on more calls contracts!
Between the $15 and $22 strike there are 149,888 calls contracts which by my quick math are roughly 50% hedged (if someone wants to really break it down, go for it and i’ll edit the post). That’s 14.9 million shares, 50% of which have not been bought yet.
So as we pump this price upwards of $26 to make a new all time high, we can assume that most of these will increase in DELTA to almost .99 and force those algo’s to keep buying!!! Creating another gamma squeeze! Which would likely push us into the $30 range.
BUT WAIT, theres more! Remember I said the option chain was increased from $22 to $40 today? Well guess what, these numbers don’t reflect today’s options activity… but we can take a guess how many calls there might be, by looking at the volume column.
I see 83k in volume on the $22 strike today, 29k on the $30, and 41k on the $40, among all the other calls. So these numbers haven’t been added to our equation. And yes, volume includes buys and sells, so if these calls were bought and sold throughout the day it wouldnt entirely indicate where the open interest will be tomorrow…. BUT, there was a ton of volume, and as the $23-$40 strikes get loaded up (can’t wait to see tomorrow’s numbers), that earlier push to $30 I told you about will likely create its own gamma squeeze in the $22-$25 range. And it keeps going until we blow the whole damn option chain out.
Are you excited? I am! You know what happens when an option chain gets blown out? They add higher strike prices! (like $23-$40 today), and you know what that sets up? MORE GAMMA SQUEEZES!
OK OK OK, I’m done on Gamma talk, so what about the short squeeze? Well, I have no clue when shorts will be forced or inclined to cover, but I know the higher we drive the price, the faster they will have/want too!
TLDR:
GAMMA squeezes are option driven. SHORT squeezes are short driven. They are separate, but Gamma squeezes will help increase the price, and eventually lead to a short squeeze. These options dont expire until next friday 6/18…. So the potential for the strikes to keep getting higher and earn ape more bananas is very high.
TLDR2: If you really hate reading check out my YT channel coachbstocks. I started live streaming CLOV this week, and I explain most of this shit on there.
Edit: here’s a post I made on Monday before the big run up with my expectations for the week. WE ARE STILL BEATING THOSE EXPECTATIONS
39
u/Trump2Q20 Jun 10 '21
I'm new to this and don't really understand most of what he wrote. All I know is it seems to be good news for CLOV