ShortGamma Squeeze

Far out of the money calls
Option sellers need to hedge, stock price goes up
Investors start buying stock
Buy puts
Sell options, stock price goes down
Cash in on puts

Option gamma is the options greek that estimates the rate of change of an option’s delta as the stock price fluctuates.

An option’s delta tells us the estimated option price change relative to a $1 change in the stock price. Delta is therefore a measure of directional risk exposure.

Since an option’s gamma tells us how the option’s delta moves as the stock price changes, gamma tells us how our directional risk exposure changes when the stock price fluctuates.

Here's what happened: on Tuesday, following days of gradual but persistent short squeezes similar to what happened in January 2021, BBBY exploded higher as retail traders piled into the stock, encouraged by news that Ryan Cohen placed another bet on the struggling retailer whose EBITDA has been a melting icecube for the past decade: for all fundamental intents and purposes, the company is dead… but one wouldn't know it by the recent price action which saw the stock explode by orders of magnitude after a regulatory filing Monday evening showed that Cohen’s venture capital firm RC Ventures bought far out-of-the-money call options on more than 1.6 million Bed Bath & Beyond shares with strike prices between $60 and $80, in a classical attempt to spark a gamma squeeze, made popular by what Elon Musk's offshore investing unit did with Tesla repeatedly in 2020 and 2021. The call options that Cohen bought expire in January 2023, and are so far out of the money, the mere purchase created a feedback loop where dealers had to aggressively buy the stock to delta hedge and since the short interest in BBBY was off the charts, a short squeeze loop also kicked in on the stock that had a short interest at a whopping 44.3% of float.