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Stocks Rise As The Gamma Squeeze Returns To Apple And Tesla

By Michael KramerStock MarketsApr 14, 2021 12:56AM ET
www.investing.com/analysis/stocks-rise-as-the-gamma-squeeze-returns-to-apple-and-tesla-200572916
Stocks Rise As The Gamma Squeeze Returns To Apple And Tesla
By Michael Kramer   |  Apr 14, 2021 12:56AM ET
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S&P 500 (SPY)

Stocks moved higher Tuesday, mostly thanks to Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA), which accounted for a majority of the broader S&P 500 gain of about 30 bps, to finish around 4,140. Again, this region around 4,130 has a lot of technical resistance, coupled with an RSI that is now at 73, and the S&P 500 is screaming overbought.

What makes this setup worse is that the Options expiration is on Friday. Looking back, since October, the S&P 500 has generally run up into options expiration and peaked 2 to 3 days before the expiration date. That would mean that we should expect to see stocks turn lower, starting today.

The only month this did not happen was in December. We also know that the period after options expiration witnesses increasing amounts of volatility, so one should not get lulled to sleep by the S&P 500 recent hot streak.

SPX Daily Chart
SPX Daily Chart

I still contend that the S&P 500 will fall back to 3,960 and fill the gap going back to Mar. 31. It doesn’t mean it is happening tomorrow or Friday, but over the next one to two weeks is my general feeling.

SPX Daily Chart
SPX Daily Chart

Looking back, a high percentage of times when the S&P 500 did hit a reading over 73 on the RSI, it did pull back. The depth and length have varied, but in some cases, the declines have been steep.

SPX Daily Chart
SPX Daily Chart

NASDAQ Qs

Additionally, the Invesco QQQ Trust (NASDAQ:QQQ) was hitting against the upper end of its March 2020 uptrend. This is an area that should offer plenty of resistance. Sometimes—not all the time—it can be a retest of the breakdown of the previous uptrend.

In this case, it could suggest that significantly lower prices will follow. As of right now, it is way too soon to make a call like that, but given the data point shown above, it certainly seems like a reasonable spot in this current rally to end.

QQQ Daily Chart
QQQ Daily Chart

Apple

Meanwhile, Apple rose about 2.5% on Tuesday, and whether the stock is running up ahead of earnings next week, tough to say. But call volume in Apple is picking up, and so is implied volatility. This is what we have seen historically during gamma squeezes, which is likely what is now taking place in Apple.

Most of the options traded on Tuesday expire this week, so the stock rally could fade very quickly. The $135 calls were the most active, so with the stock trading at $134.40, the calls could start losing value quickly if the stock doesn’t get over $135 early today. That means market makers will go from being buyers of Apple’s stock to hedge against their short call positions to unwinding by selling Apple’s stock.

AAPL Historical Volume
AAPL Historical Volume

Tesla

The same thing happened in Tesla. Yesterday, the most active calls were the Apr. 16 $750 and $800 strike prices. Tesla was at $762ish, so if Tesla doesn’t hold above $750, we could quickly see the same unwind happen in Tesla over the next few days, meaning market makers start selling the stock to unwind hedges.

Tesla Historical Volume
Tesla Historical Volume

It is fine to play the game; just make sure what game your playing.

Original Post

Stocks Rise As The Gamma Squeeze Returns To Apple And Tesla
 

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Stocks Rise As The Gamma Squeeze Returns To Apple And Tesla

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Comments (4)
FATME sahraie
FATME sahraie Apr 15, 2021 2:50PM ET
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hi,dear I'm iranian how to get money from your please
TL Chan
TL Chan Apr 15, 2021 12:03AM ET
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Please reference how Benzenga talks about abnormal option activities, it will do you some good!
TL Chan
TL Chan Apr 15, 2021 12:01AM ET
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What so special people have calls around 750 or 800. it is normal , So we see the concentration aee around those level, so what! It is expected, it is normal ! Why do you have option trading, of course for people to trade! Where is the insight ? I cannot believe someone can writes things like this!
TL Chan
TL Chan Apr 14, 2021 11:56PM ET
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All fund sell stocks when they cannot continue to rise, Call seller hold the stocks for possible call buyers exercise assignment, everyone know, no need for Kramer to waste our time reading this. When we talk about gamma or beta squeeze, we want to point out abnormal option activities ! Why wasting people time reading something trivial and with not much meaning?
 
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