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 sell off, 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...
(Click on image to enlarge)
Which has seen MRNA soar higher and then crash today, testing the recent uptrend...
(Click on image to enlarge)
As the put-based gamma squeeze has accelerated losses dramatically. Deep OTM Puts have dominated options market activity...
(Click on image to enlarge)
Sparking a vicious circle lower in the vaccine provider's stock...
(Click on image to enlarge)
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.
Comments
Log in or sign up to join the conversation.