A New Twist in the Battle Over Highly Shorted Stocks
While the endgame is still forcing institutions to cover their short positions, one particular facet of options trading could give retail traders a big boost this week.
These days, headlines about the latest short squeeze stock movements are almost everywhere.
But the conversation has changed in the last few days.
The talk is no longer just about forcing hedge funds and institutions with massive short positions to cover their trades by buying back shares.
Instead, the attention has turned towards a market phenomenon called a gamma squeeze – and the enormous implications it could have for AMC Entertainment Holdings, Inc. (AMC).
The huge influx of retail traders that have piled into the market over the last year haven’t just been buying shares of AMC. They’ve been heavily invested in call options, as well.
And with the recent spike in AMC’s stock price, many are speculating that the market makers that sold calls to retail investors could soon be feeling the squeeze.
Where’s the money?
If you’re not familiar with how a gamma squeeze works, don’t worry, I’ve got you covered.
To give you a simplified explanation, a gamma squeeze typically occurs when there has been a large amount of buying of short-term options. When the price of a stock moves rapidly – like we’ve seen recently with AMC – it can create a real problem for the institutional investors who sold those options.
Those market makers may ultimately have to deliver shares of the underlying stock for the options they sold that end up in the money (above the strike price of the option). To hedge that exposure, they’re forced to buy shares of the stock, which in turn drives the price of the stock higher.
Right now, there are more than 480,000 calls options with a June 18, 2021 expiration date that are in the money.
Such a large number of contracts needing to be hedged against would necessitate the purchase of over 480 million shares.
While the retail crowd is dreaming of more gigantic moves up from the potential gamma squeeze, I would advise you to temper your expectations.
How do I get some?
At this point, it is likely that much of the options exposure has already been hedged by the big institutions that sold calls.
But not all. There is likely still a large amount of contracts that need to be hedged against.
While I don’t see a move into several hundreds of dollars per share like many retail investors have claimed on Reddit and other forums, I do see the potential for a significant rise.
To get a more accurate measurement of how far the stock can move between now and the end of an expiration, I always look at the money straddle.
Basically, take the price of the at-the-money call and the price of the at-the-money put for the nearest expiration date and add them together. That will give you an idea of the how far the options market is judging a stock could potentially move in that timeframe.
Based on this metric, at the time of this writing there is roughly a $15 implied move for AMC stock – and I think the stock has a great chance to move up that much by the end of the week.
I still think that AMC and GME are heading lower eventually. These levels can’t be sustained forever. But since the premium is so high right now and the price action is still trending up, I think it is better to buy for more movement to the upside.
If you’re looking to make options trades around these names right now, my favorite strategy is Put Butterflies based on the Measured Move Target we discussed.
Get Your Share of the Short Squeeze Wealth Being Created
The battle between retail investors and the Wall Street institutions with gigantic short positions is a complex and multi-faceted conflict.
And as we’ve since ever since late January, the little guy CAN beat the Wall Street elite for tremendous profits.
But the institutions are doing everything they can to fight it.
I want to show you how you can get into position to go after HUGE money on what could be the next short squeeze target.
The key is my proprietary S.C.A.N. system that tracks where the biggest money flows from traders is moving. I’ve spent months fine-tuning S.C.A.N. to zero-in on the most heavily shorted stocks in the market.
That allows me to find short squeeze opportunities in real-time with ease and provide my Super Squeeze Profits subscribers with the right trade recommendation to take advantage.
For example, in late April subscribers had the opportunity to get in ahead of the crowd before Clover Health Investments, Corp. (CLOV) saw a huge short squeeze surge.
The call options I recommended gave them the chance to cash in an enormous 313% profit in just over one month.
Want to see how it works? Click here to learn more.
In the Spotlight: Tesla testing the Bitcoin market
Bitcoin priced experienced a rally on Monday after one of the people most responsible for it’s recent decline had a change of heart regarding the world’s largest cryptocurrency.
But, there’s a catch.
Tesla, Inc. (TSLA) CEO Elon Musk said that Tesla would resume accepting Bitcoin as payment once it can confirm that at least 50% of the energy used to mine for Bitcoin comes from renewable sources.
Musk also confirmed that Tesla had only sold roughly 10% of it’s Bitcoin holdings, calming fears that Tesla had dumped the majority of its Bitcoin.
The price of Bitcoin jumped nearly $5,000 from the time of Musk’s tweet to mid-afternoon on Monday.
This may be the catalyst Bitcoin needed to pull itself out of the steep decline of late, and I’ll be looking for a good entry point for you to jump in. Stay tuned.