The Gamma Unwind And Amazon's Post Prime-Day Fizzle

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by Tyler Durden
Wednesday, Oct 14, 2020 - 07:05 PM

Two days ago we discussed Tuesday's berserk, 4% meltup in the Nasdaq, which was the result of a double whammy as both dealer gamma (which was net short) and net spec NQ futures positioning (which was extremely short), were squeezed sending the tech index 4% higher.

But while readers are by now familiar with how the Nasdaq whale forces a market-wide squeeze at will, some have asked how gamma manifests itself at the single stock level.

To answer that we go to a case study from SpotGamma  released today, which looks at stock, which "is interesting here after the prime day fizzle."

As SpotGamma notes, on Monday there was huge call volume with over 300k calls trading, as the stock exploded higher...

... while yesterday this collapsed by nearly 50%, to just 190k, resulting in a directionless drift in the stock.

These are significant volumes as total call OI in the name is 490k. It also means that the call buying likely brought gamma hedging that pushed the stock up (something SoftBank is all too aware of when it loads up on billions in costless call spread).

However, as those calls decay and dealers unwind, hedging flow is now reversing.

What does this mean for levels? According to SpotGamma, "we look at  3300 support due to that strike being the largest concentration of calls. Going into Friday 55% of the stocks gamma expires and 30% of the outstanding delta which likely adds to the volatility over the next several days."

In short, we may see another $50/share decline in AMZN, at which point the Nasdaq Whale will likely re-emerge, and repeat the gamma pump and dump, making a quick few million in the process.