How Gamma Squeezes Can Affect Your Trading

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Yesterday I sent you an article about “Gamma Dynamics,” and how an increase in options activity can affect a stock’s price.

I used Tesla as an example and showed how increases in Call and Put selling (at different times) have driven the price up and down, respectively. 

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Derivatives affecting the price of an underlying asset are not unheard of.  

Gold bugs have been complaining for years that banks manipulate the spot price of metals with derivative contracts.  

I don’t think there’s any intentional manipulation going on.  But there’s no doubt in my mind that options contracts are moving stock prices right now. 

For you, that means the pricing of a stock or an options contract can be misleading.  

The options contract affects the stock price, then the stock price affects the value of the options contracts…

It’s like trying to get a touchdown on a field where the end zone is constantly moving.  

The longer this bizzaro world of pricing keeps going further it becomes disconnected from real life. 

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There’s no doubt some people have made money in this kind of environment – just look at the meme stocks.  That situation isn’t exactly the same, but it’s close enough for demonstration purposes. 

Yes, some people made money. But far more people lost a lot of money!

In Options360, we steer clear of those kinds of volatile trades.  Instead, we focus on grinding out profitable trades week in and week out. 

I know that’s not as exciting as a 1000% home run, but it’s been 6 years now (since 2015) and we have smashed the S&P every year…

Something that 92% of large fund money managers can’t do consistently.

Right now, until this phenomenon passes it’s critical that you be VERY careful with the trades you put on.  You can see some price action that looks like a great setup only to find that in reality, it’s just a reaction to some large options activity.  

And when that happens you could easily be tempted into a terrible trade that looked great at first.  

So forget pie in the sky trades, and instead focus on grinding outsmart – repeatable – profitable trades that can help you build real long-term wealth. 

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To Your Success,

Steve

PS.  If you missed it, you can read yesterday’s article here.