One result of Gamestop’s move today is it ran out of options strikes above $60. Until new strikes are listed that takes away the short gamma effect of upside calls on the stock.
That short gamma effect goes like this, a ton of retail buyers pile into upside calls, and leave the sell side short those strikes. They hedge with stock but as the stock rips higher, more and more stock needs to be bought by those that sold calls (market makers, trading desks).
A great example, the 60 calls expiring today were trading under 5 cents very recently. Today, they were worth more than $10 with the stock above $70. Imagine what kind of stock needs to be bought to hedge against those now versus when they were initially sold at less than 10 deltas. Add that gamma effect to the short squeeze in the stock and you see why GME has days like today. But as of now, that gamma effect largely disappears above $60 in the stock
This only matters at the moment for GME, new strikes will be listed by Monday, but sort of an interesting options inefficiency I thought was interesting. BTW, here’s the current expected move in the stock via Options AI. As you can see most of the movement is being priced in the next week or so. In other words near term options is where all the buying is at the moment:
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.