A gamma squeeze is a feedback loop where options dealers, forced to hedge a pile of call options, buy the underlying stock - which pushes the price up, forces them to buy even more, and accelerates the move. It is not magic; it is mechanical hedging playing out at speed.

The loop, step by step

When traders buy a lot of calls, the market makers who sold them are now short those calls and exposed if the stock rises. To stay neutral, they buy shares to hedge - and the more the stock rises, the more shares they must buy (that increasing sensitivity is gamma). Their hedging buying pushes the price higher, which forces more hedging, and so on. The result is a sharp, self-reinforcing rally.

Why it is fragile

Gamma squeezes are violent but unstable. They rely on continued call buying and dealer hedging; when the buying stops or the calls are sold, the same mechanic can reverse - dealers unwind their hedges, selling into a falling price. What went up in a hurry can come down just as fast. Squeezes are momentum on a timer, not a durable trend.

A gamma squeeze is dealers being forced to chase - until the moment they are forced to sell.

The bigger picture: gamma regime

The squeeze is one dramatic case of a broader idea: dealer positioning can either amplify or dampen market moves. Which one is happening depends on the aggregate gamma in the system - the subject of gamma exposure (GEX) and the gamma flip that marks the switch between the two regimes. Understanding which regime you are in matters more than spotting any single squeeze.