Hey, I want to ask if an increase in open Put Options has any effect on price of a stock. You know like does it effect hedging in anyway? I know shorts in a gamma squeeze have to cover adding fuel to the fire.
Basically does increasing amounts of put options have any effect on a stock leading up to a gamma squeeze?
There’s a bit of mixed theories on this one. Most agree that it doesn’t really have a effect on hedging for the gamma squeeze. You gotta consider what the contract does and if the MM sells you a put (or sell to open) they actually effectively are making money as that put becomes cheaper from the gamma. So it’s probably actually benefiting and hedging the financial loss of selling those calls for the squeeze. It doesn’t reduce or remove the MM risk of call holders exercising their options so they need to hedge the calls regardless if they have puts. The puts may act as a book balance but overall it’s not worth being concerned by the put to call ratio for this from a hedging perspective imho. MM’s are gonna make money based off what I described above with any volatility and liquidity (also stupidity). Whoever is buying 10p expiring next week are burning money since we don’t have a merger date and NAV is still in place. But decent question hope I helped.
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