Since this may be a difficult concept for some to grasp, I will lay out the key fundamentals of $GME stock, before laying out the explanation.
- There are too few GME shares to hedge.
- Hundreds of thousands are buying the GME 60C because of the infinite short squeeze.
- January 29, 2021 60C call option is the highest one on the options change for that date. These 3 Conditions give the potential for a Infinite Gamma Squeeze & Infinite Short Squeeze
Infinite Gamma Squeeze
When millions of retail traders buy the January 29, 2021 60C weekly contract which happened this Monday, it will create an infinite gamma squeeze because market makers still can’t properly hedge their positions, and are forced to buy shares at whatever price. Market makers and hedge funds that are short naked call options on GME will be forced into a margin call causing the short-sellers caught in this to be forced to buy back the shares they sold short fueling the momentum for the stock price to go even higher. This may have already happened today as the stock closed at $60 on Friday last week and managed to hit $159 today before closing at $76.79 today.
Based on the days to cover formula. There are 2.54 days left before the short sellers have to cover their positions based on the daily volume of the stock and the short float on GME which is still at 65%.