Is this gamma squeeze what's happening to TWTR today? It looked like options were buoying it up after a massive dive on opening. If that's the game, it gives everyone more time to get short past this news cycle.
Unless there's some significant news or M&A deal that you can tie to price action (and even then, you're most likely explaining only part of the price movement), you won't know why a price is moving.
There is a whole industry of people adding post-hoc rationalizations to price movements (e.g. CNBC, stock gurus and others). They do it because 1. what they say is not falsifiable in any way and 2. people find idle speculation about money to be exciting.
I think it's right to point out "on any given day". On broader time horizons you can easily figure out why prices move and you can bet on it much easier.
> The RSI is trading above 70. This could mean that either the stock is in a lasting uptrend or just overbought and that therefore a correction could shape (look for bearish divergence in this case).
The price might go up if it doesn’t go down? Thanks, very helpful.
So, they're predicting both sides of movement because they're interested in the slope of the trendline dividing those sides and the time-frames they're analyzing, not the sides themselves.
One example that clarified it for me is a purely degenerate case, the stock went from 1 to 0 over all possible timeframes. In that case, all trendlines are purely vertical, all trendlines are the same for all timeframes, so the fact it can only move up is obvious, and contrasting trendliness is uninteresting.
However, in other cases, (say, a small medical research company that has been on the market for a decade but recently produced the singular vaccine for a massive pandemic, but has an expensive and novel manufacturing process that makes it 5x the cost of competitors possible solutions), contrasting trendlines for the last two months versus last decade is very informative for comparing the case in which the vaccine market becomes competitive, versus the monopoly it "is" today.
Noting the signal we'll receive about the 'class' of price movement, based on both directions the price could move, is very helpful and necessary for judging the TA after the time period plays out.
The retail investor gets long an option (let's say a put), and the dealer gets short that option. As the price goes down, the retail investor gets shorter (higher chance his put finishes in the money), whereas the dealer gets longer.
In general, retail investors don't hedge, whereas dealers do. As the stock price goes down, the dealer needs to sell stock to hedge and avoid getting net long the stock. Thus a gamma squeeze tends to exacerbate rather than mollify volatility.
This gives rise to a phenomenon known as pinning where stocks prices tend to oscillate around strikes with high OI and thus high convexity.
The simple reason is that like delta, gamma is also not constant. Gamma is our derivative of delta with respect to underlying, but there exists another measure called speed which is the derivative of gamma with respect to underlying (gamma of gamma). This is normally distributed around the strike price of the option, so as you deviate from the strike, the gamma of an option decreases which means that MM hedging decelerates as you move away from the strike. It also means that MM hedging accelerates as you approach the strike. Convexity cuts both ways.
Let's say a MM is short a $100 call in some asset X. When we are below $100, any move towards $100 means we have to buy increasing amounts of X in order to remain delta neutral. This pushes prices towards $100. But as we move through $100 this force decelerates. So let's presume that market momentum takes us to $110, at this point, a $1 drop to $109 results in more selling than an increase to $111 results in buying. These forces can become self fulfilling whereby the selling that we have to do when we drop from $110 to $109 contributes to downward pressure and pushes us to $108. And recall that our hedging accelerates as we move towards the strike. So we have to sell even more now than we did before, which further contributes to downward momentum. This pressure peaks at $100 at which point is starts to decelerate again, providing a natural tendency to revert to high OI strikes where there is substantial outstanding gamma.
Trump's use of Twitter to rally the hordes has been a major factor in his ability to motivate and steer public unrest. His absence from Twitter is going to have an impact on the platform's engagement numbers and public relevance. Meanwhile, Wednesday's insurrection is another piece of evidence that S230 isn't sufficient to foster a healthy public conversation.
Twitter's reluctance to silence Trump in the past four years alienates the Left, while their decision to do so last week alienates the Right. Trump's absence from the platform disengages both groups, as well as whatever paid propaganda apparatus exists to bolster certain ideas on Twitter.
2. Market makers sell these calls, and so buy TSLA shares to cover their position.
3. Due to #2, TSLA shares appreciate, as well as the calls from #1.
4. Retail investors see all the money being made, and FOMO in to buy more calls; go back to #1, repeat.