The Gamma Squeeze Guide [Part 1: Making an Entry]

This post will act as a living document for our general knowledge of how to play potential gamma squeezes. The goal is to answer commonly asked questions and provide a blueprint for trading them effectively. I’m going to do this chronologically starting with initial entry and follow through to post movement. – There is more to this guide, I’m just releasing this first bit because it’s probably pertinent to what’s happening right now.

Making an Entry

As with all trading, the best time to buy is the lowest price the underlying trades in a movement. The saying from Warren Buffett is absolutely true:

“Be fearful when others are greedy, and greedy when others are fearful.”

The best entry is often the one that looks the worst. So in order to be able to make “big plays” you have to be willing to take an entry when other people aren’t psychologically speaking. Now on the technicals of when to enter, the guidance is the following:

  1. Do not enter right at market open. Have you ever wondered what your options are going to be worth at open? Yeah, so does the entire market. Pricing is completely unreliable within the first 30 minutes of the trading day and taking entries here will usually get you a position that you paid too much for.
  2. Buy on red candles or “boring” movements (not when the stock is going “UP”). Options prices are cheapest when the stock is actively going down because everyone is selling. Pricing works on the theory of supply and demand, prices are cheapest when nobody wants something and most expensive when the inverse is true. So if you’re buying when everyone else is buying, you’ll be paying inflated prices.
  3. Try to take entry near levels of support. If you can, buying near support is somewhat important. The safest place to be when climbing a mountain is the ground. You can determine support levels by putting your charting software on the 5-15m timeframe and simply looking at the price points where a stock has traditionally “bounced”. A guide on this can be found here: Support and Resistance Basics
  4. If you suck at TA, try twitter. Being good at TA is a lot like having a penis, if you do, you just kinda want to show it to someone. Twitter is full of people doing TA on a whole host of tickers. Just search the ticker and scroll a bit and you’ll likely find someone that already was worked up a plot of levels. If you can’t, do hesitate to request one in #ama.
  5. If all else fails… buy between 10:00AM and 11:00AM. In Gamma Squeeze plays, there is high correlation with these specific times being the “bottom” of the day. More often than not, position taken during these times end up being some of the best entries you could’ve gotten. (Obvious look at the chart and follow the other rules as well).
  6. Don’t buy your whole position at once. I often see people buying as big of a position as they’re going to have in all one go. While this is fine and somewhat suggested for good entries, it’s awful strategy if you’re unsure. If you’re not sure about your entry point, break your buy-in into multiple buys. Buy “1” now, wait 30mins to and hour and buy another if it’s at a better spot. If you average into a position, the chances that you’ll get a good cost average are much higher.
  7. Don’t buy the ask. One of the biggest mistakes people make is buying the ask on options. The highest buy-in you should attempt is the mid with the best place to buy being the bid. If you’re buying the ask, your position is already at a loss when you enter it and you’re just robbing yourself of potential profits while making your position less safe at the same time.
  8. But always remember, the earlier the better. Time is a bitch in squeezes. For instance with ESSC, if you would’ve taken a position on 2021-12-10T05:00:00Z, your entry would’ve been around $12.50. The lowest price it’s traded today 2021-12-13T05:00:00Z, is $15.15 cents at open.

Quick Recap

  1. Don’t buy at market open
  2. Buy on red candles or times it’s trading sideways.
  3. Try to buy near support levels.
  4. Ask for help with support levels or try Twitter for already completed charts if need be.
  5. If that doesn’t work, take an entry between 10:00AM and 11:00AM.
  6. Break up your buy-ins (average in to the position.)
  7. Try to buy the mid and in the best case the bid.
  8. But don’t take too long because entries get worse the closer to “the squeeze” that you get.