As we noted earlier in the year in one of our detailed explanations of market action, historically speaking, gamma squeezes have been primarily associated with markets dropping, not rising.
This is because often as markets start to selloff, traders seek downside protection by purchasing put options. As traders buy puts, dealers (who are short those puts) must short stock to hedge themselves, further adding to the downward momentum driving a stock’s price lower. This ends up turning into a “reflexive” fear-based feedback loop (as opposed to the greed-based call buying gamma squeeze).
In the case of MRNA, which has exploded higher in recent weeks (best performer in the S&P this year) – on the heels of positive gamma-squeezing WSB traders, that negative squeeze is very much in evidence today.
The last few weeks have ‘bullish’ interest in MRNA soar on WSB… until today…
Which has seen MRNA soar higher and then crash today, testing the recent uptrend…
As the put-based gamma squeeze has accelerated losses dramatically. Deep OTM Puts have dominated options market activity…
Sparking a vicious circle lower in the vaccine-provider’s stock…
But hey, Steve Weiss still thinks this is a 5x from here as the company is set to cure cancer (even though it seems the COVID vaccine’s efficacy is already coming into question)… “This continues to be a safe story going forward,”
Trade accordingly.
