Gamma Squeezes Cut Both Ways. Most Traders Only See One.

Intel was down 5% in the premarket this morning.

That's not unusual on a bad headline day. What's unusual is the run leading into it — 5%, 6% consecutive days. The kind of run that gets retail comfortable.

So Intel opens down. What does retail do?

Most traders see this kind of pullback and think one of two things. Either it's an opportunity — the dip, buy it — or it's the start of a roll over, and the right move is buying puts.

Both are wrong. And both are dangerous in ways that aren't obvious until the position is already in trouble.

Here's why.

Most traders think gamma squeezes only go up. Dealers short calls, hedge by buying the underlying, price runs to the next strike, dealers buy more, the move accelerates.

Everyone has seen this play out. Most people assume that's the only direction it works.

It's not.

The same machinery runs in reverse. Customers buy puts.

Dealers end up long puts on their books. They hedge by shorting the underlying.

Price falls toward the put strike. The hedge requires shorting more. The fall accelerates.

That's a negative gamma squeeze. Same mechanism, opposite direction.

Now back to Intel. The stock was a leader on the way up. That means dealers were heavily short gamma to the upside as it ran.

As the shares slide, dealers are still rebalancing — and a piece of that rebalancing is selling stock.

If retail comes in here buying puts because they think they're getting ahead of a breakdown, they're not putting on a hedge. They're feeding the squeeze that's already pulling Intel lower.

That's the screwed-and-in-a-hurry trade. Trying to buy your way out of a hole on a name where dealer positioning is doing the opposite of what you want.

The math is not on your side.

Here's the part most retail never learns. A gamma squeeze isn't directional. It's structural.

Once you know which side of the structure you're on, the chart starts to make sense. If you don't, you're guessing which way the wave's about to break — while standing in front of it.

That's not analysis… it’s Russian roulette.

Intel's going to move one way or the other in the next 48 hours. The option chain will tell you which direction before the chart does. If you wait for confirmation, you're already late.

If you want to learn how to trade opportunities like this, then the best way to do that is to book a call with my team. They’ll tell you all the services we have at TheoTrade and how you can use them to profit in this market. 

Click here to book-a-call. 

To your success,

Don Kaufman