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I'm pretty sure AMC is going to hit crazy prices in a couple of weeks to months. A Korean AI traded fund just dumped Facebook and Wallmart for AMC. Plus, I got in a pretty big fight with some multimillionaire shorting the stock, after joking about selling each share for $2 mil each. I have no idea how high the gamma squeeze will be if it comes, nor how to calculate the volatility of it for exiting at the right time.

AMC keeps getting added to the Threshold Security List, and eventually it's going to stay on there for 13 consecutive days, and force all of those shorts to close. I think they're getting emotional and have way doubled down on buying shares that do not exist. Would make sense for normal stocks; but, everyone buying AMC doesn't care about any fundamentals. Just the short term effect of there being more shorts than available to buy. I do think this could be a profitable company depending on how the Apes play this post spike.

What I've figured out so far is I want to use a percentage based trailing stop loss to maximize profits, while minimizing risks. When the event happens it's definitely going to be a sellers market, and ask seems like the right price to base the volatility percentage on. I heard you want to toss a multiplier in too. Don't know if I need one for gamma squeeze. Everything I've read was using more long term volatility indicators, and I don't believe those apply for a gamma squeeze.

I found a bunch of formulas for calculating gamma here. But, I'm not sure which to use per say for this stock, and I don't know how many data points should be collected the day of. I don't believe dividends should matter with the sudden spike. AMC has not paid dividends since 03/06/2020 either. Are any of these formulas right at all for this situation?

This is clearly something skilled day traders know. All of the investors I know do not mess with day trading. This includes very wealthy traders, and they could not help me on this. How do I calculate gamma accurately enough once the price starts spiking up crazy? Where would I find all of the data needed?

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  • If you don't know the answers to all of these questions so well that you could explain them to anyone in a few minutes flat you shouldn't go anywhere near this trade with a barge pole. It's like asking that you know part of the current physics model is wrong but don't know how any of the formulas behind it work or what they mean or do.
    – Philip
    Jul 13, 2021 at 15:01
  • Physics has much better explanations of this stuff. I'm dealing with trade secrets. If someone with experience teaches me how to approach this it should not be that hard. I'm a computer programmer, and deal with much more difficult math on the regular. All of my friends in college in business calc described the course work as a joke. I took actual Calculus and did well. I just don't have a finance background.
    – ZeroPhase
    Jul 13, 2021 at 15:24
  • That IS the problem in finance markets. No one who's not an idiot or a fraud will tell you the answers to questions like this as they hurt the edges the people who do understand it well make money from. It's like asking how to build pricing models for Premier League football to beat the betting exchanges - no one who knows will ever tell you the answers. As you stand you don't know these things and many people in that market do, and hence why you should run a mile from it.
    – Philip
    Jul 13, 2021 at 15:31
  • I'm already up a ton. If I figure it out, I'll tell everyone that holds AMC stock how to do it. I think that should guarantee we screw everyone shorting it, by having no one throw out market prices they're going to be lobbing at us to catch less savvy investors. Should lead to a significant increase in the average price when the squeeze happens if I teach people. I'm just doing this to get cash flow for other investments I can easily manage based on long term predictions I've made using disciplines traditionally not involved with finance. Stuff like mass psychology, and such.
    – ZeroPhase
    Jul 13, 2021 at 15:35
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    Hedge funds aren't some homogeneous blob: loads of them will be on both sides of this trade, loads short and loads long and loads ignoring. Its all just poker to them. That's why you're in difficulty with this type of trade. The tradespeople even on your side of the trade know a lot more, will sell faster/better, understand the liquidity and anhiliate the entire order book constantly, heavily aided by it being full of fish leaving basic ladders of orders of the type you're thinking about lying around etc.
    – Philip
    Jul 13, 2021 at 19:41

1 Answer 1

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Gamma is a function of current option price and is easily calculated. It tells you how fast delta is going to change per point move in the underlying. Its current value tells you nothing about how much the "underlying" is going to move up or down. And there's no need to learn how to calculate the value of gamma because any decent broker (even web sites) provide the Greeks.

A “gamma squeeze” involves massive buying short-dated call options. In order to offset their negative delta, intuitional investors who are short the calls (negative delta) must buy shares of the underlying stock to hedge their short positions, further fueling the short squeeze.

For lack of a better analogy, there's a huge tropical storm or hurricane coming. The town's river is poorly protected (levees and sand bags that resist overflow) and the town is going to flood. Question: How much of the town is going to flood? That depends on how much excess water there is and how fast it arrives. The more there is and the faster it pours into town, the worse the flooding.

A gamma squeeze is similar. How much flooding is there going to be (huge share buying)? How fast will that share buying hit the market? How much resistance is there going to be (willing sellers)? All of these are unknown so asking where the top will be (best price to sell at) is also unknown and not predictable.

As one who has invested as well as utilized options for decades, if I were lucky enough to be on the right side of a gamma squeeze, I'd look to hedge my gains as they accrued. That means either an opportunity loss (capping gains) or throwing some of the accrued gain away to hedge downside loss of profit. This would require option literacy and the ability to make quick decisions in the moment since volatility would be wild during the squeeze.

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  • Yeah, that's why I'm trying to setup a trailing stop loss properly. Shouldn't that let me climb the spike up to 70% to 80% of the way, and just sell everything the second it starts dropping? I'm not sure how reliable the data from all of the sites is on AMC. A bunch of the sites tracking shorted stocks started removing it after all this started. I just know it was on the threshold security list for nine days, till last Friday, and the volume is crazy low compared to average. What sites would be reliable for gamma?
    – ZeroPhase
    Jul 13, 2021 at 15:31
  • I would personally prefer to just punch in a crazy limit price, and safe stop loss. But, my brokerage won't let me just toss crazy orders in like cryptocurrencies let you do months in advance.
    – ZeroPhase
    Jul 13, 2021 at 15:31
  • The people holding AMC keep throwing numbers around between $100k to $2 million per share, as their minimum sell price. I think it could definitely hit $50k for like 200 shares based on past stocks I've looked at in similar situations.
    – ZeroPhase
    Jul 13, 2021 at 15:45
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    Trailing stop loss orders are no guarantee of anything. Note that GME gapped down almost 75 points in February, almost 1/4 of its value. Intraday, it lost another 75 points so that means that an overnight trailing stop lost more than 75 points but less than 150. As for anyone "throwing numbers around between $100k to $2 million per share", they're delusional. $50k for like 200 shares (a rise of $250 per share?) is more of the same.
    – Bob Baerker
    Jul 13, 2021 at 16:02
  • I've seen it hit $70k on Respirerx back in 92. I would type it in the day of, after they're legally required to close every position. The stock did trade between $2k and $4k on average though. You have to remember the AMC sellers are not being rational. They're also getting the hedgies emotional to make them double down on shorting. I think prices like that might be possible from rational people being forced to buy from the irrational.
    – ZeroPhase
    Jul 13, 2021 at 16:26

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