@PunterJeff and Ryan have been talking about the historic 1/17/25 expiration for over a year ‼️‼️‼️

They referred to it as an “epic short squeeze” way back in Feb 2024, but we now know that the rapid rise in price would not be primarily driven by short sellers needing to cover, which is the conventional definition of a short squeeze. Rather, it could be a result of the lack of shares available to buyers as sellers are not willing to sell shares/options contracts but would rather exercise them. There would be then a “short supply” of shares on the margin that are available to purchase. 

The squeeze we would see could be a combination of a short supply squeeze, Gamma squeeze, and Vega squeeze. Here are the definitions:

Short squeeze: price rapidly rises, short sellers scramble to cover their positions by buying stock from the market (shares are traded on the margin, so only shares that are available to sell can be purchased. Seems trivial, but it has a massive impact on price if there is massive buy pressure with not many willing sellers available) 

Gamma squeeze: price rapidly rises, leading to the delta of options positions rising. Market makers hedge their positions and exposure to options contracts by purchasing an amount of underlying shares equal to the delta of an options contract. The delta is the % chance the contract ends in the money. 

Gamma squeeze Example: 

Delta of 1/17/25 $350 strike contract is currently at 0.67 ($MSTR current price is ~$371) 

To be fully hedged, the market makers need to purchase 67% of the shares represented by this specific contract. Open interest is ~5000 contracts per Robinhood. This means market makers need to have ~335,000 shares (5000 x 0.67 x 100) to be fully hedged. If the option ends in the money, they need to be ready to pay out ~500,000 shares to those exercising call options. They will be trying to buy these options back because the last thing market makers want to do is to have to pay out underlying shares. 

What happens if the price over the next couple days jumps to $450? Well, all of the options up the chain increase their delta significantly. $425 strike price 1/17/25 option has a delta of 0.29 right now. If we see the run up to $450, this delta could jump to ~0.7. Market makers then need to purchase shares at the market to return to delta neutral. Until they do so, they are net short Microstrategy, and they never want to be short or long. Simply neutral. 

This is the makings of a gamma squeeze - market makers keep returning to the buy shares at the market to hedge for the rising options contracts prices and associated delta. This pushes the price higher and the cycle further intensifies. Eventually, the price climbs high enough where new sellers enter the market to provide shares to market makers. If sellers don’t want to sell, price will continue getting pushed higher. 

Vega squeeze: implied volatility spikes, resulting in a large increase in prices of options contracts. We saw this to some extent when the stock ran up to ~$520. IV ran up massively and options contracts became ridiculously expensive. With all of the current market dynamics, we could see implied vol spike, which could add fuel to the fire. 

Regardless to say, this is a very exciting time to be watching $MSTR. We’ve shaken out the tourists, and those that are left largely expected this and saw it coming. We get to sit back and watch the fireworks now 🍿🎆

🟩☝🏾

#MSTR #Bitcoin