What are the differences between a gamma squeeze and a short squeeze in the context of cryptocurrency trading?

1 answers

• Johnbosco Chukwuemeka OkaforJan 07, 2025 · a year ago
  In the context of cryptocurrency trading, a gamma squeeze and a short squeeze are two distinct scenarios that can impact the market. A gamma squeeze occurs when there is a sudden surge in demand for call options, leading to a rapid increase in the price of the underlying cryptocurrency. This can happen when traders anticipate a significant price movement and rush to buy call options, causing the price to spike. On the other hand, a short squeeze happens when there is a sudden increase in the price of a cryptocurrency, forcing short sellers to buy back the cryptocurrency to cover their positions. This increased buying pressure from short sellers can result in a sharp price increase. While both squeezes involve a rapid price rise, they are driven by different factors. A gamma squeeze is driven by options traders, while a short squeeze is driven by short sellers. Traders should be aware of these phenomena as they can create volatile market conditions and impact their trading strategies.
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