It’s been a crazy few months for shareholders in Vinco Ventures (NASDAQ:BBIG). Following a two-week trading halt in August issued by the Nasdaq, shares of BBIG stock more than doubled in the span of a few days. However, since that mid-August spike, shares of this company have since fallen back to earth, giving up around half of these gains.
Today’s impressive surge of around 8% has outpaced the market and indicates interest in speculative names such as BBIG remains high. One of the key drivers for interest in Vinco Ventures today is hype around a potential gamma squeeze on the horizon. According to Twitter personality Will Meade, Vinco Ventures is currently in 5th place in terms of gamma squeeze opportunities, as ranked by Fintel.
Now, there’s a reason why Vinco Ventures has been so heavily shorted by investors. This is a company with a significant amount of internal strife. Indeed, when a court orders a company to have three co-CEOs, something’s generally not jiving well with the management team. For some, this is too many cooks in the kitchen. For others, this internal squabbling means Vinco Ventures is too risky of a company to own in this environment.
With that being said, let’s dive into this gamma squeeze argument around BBIG stock.
Can BBIG Stock Provide the Next Big Gamma Squeeze?
Many high-profile gamma squeezes have taken place in recent years which provide a road map for what investors can see during periods of heightened volatility. When enough investors pile into a heavily-shorted stock, specifically in the options market, market makers can be forced to buy shares, accelerated short covering and overall buying activity in a given stock, resulting in a near-term spike in price.
Gamma squeezes refer to market makers hedging the gamma (tied to the delta, or the rate of change of an options price relative to a change in the underlying equity price) of a given stock. For market makers looking to take the other side of an options bet, sharp changes to the underlying price of a security may provide for unlimited near-term losses. In a case where a large number of retail investors pile into short-term call options on a stock such as BBIG, market makers who write that option (betting it will stay relatively stable) may start buying shares of BBIG to hedge their losses, if BBIG shoots higher in the near-term. This increased purchase volume can drive the price even higher, creating an upward spiral in the price for a short amount of time.
Gamma squeezes are often short-lived and are rare, for a reason. Market makers tend to make bets they don’t lose. They’re the house, and retail investors are in their casino. However, when the probabilities get out of whack, and gamblers have an edge, gamma squeezes do happen. That’s what many investors may be betting on right now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.