The invisible gamma driving these parabolic moves

A market-structure read on why these parabolic moves are getting more violent.

You've got all these technical factors driving it, and leverage ETFs are one of the biggest. They're basically a synthetic short gamma position that doesn't show up anywhere on the options surface.

Here's the mechanic.

A leverage ETF promises 2x or 3x the daily return of an underlying stock. If there's serious AUM in the ETF and the stock rallies 5 or 10%, the ETF has to buy more stock to make sure tomorrow's return tracks 2x or 3x of whatever the stock does.

That's short-gamma behaviour. The bigger the move, the more they have to buy. In either direction.

By the end of every day, they have to be sized correctly so the next session tracks the stock by the leverage factor. The rebalance is mechanical. It doesn't care about valuation. It doesn't care that the name is already up 80% on the month.

The "gamma" effect sits in the ETF rebalance flow. The options open interest landscape won't show it to you.

That's why these monster moves keep coming. The flow that's driving them is forced, mechanical, and invisible to anyone scanning options open interest for the next squeeze.

I dread the carnage when these names eventually turn south. Because the same mechanic runs in reverse. The stock starts to fall, the ETFs are forced to sell, the move accelerates, and there's no natural buyer on the other side until something else breaks.

Short gamma cuts both ways. On the way up, it gives you the parabolic. On the way down, it gives you the cliff.

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