What Is the Difference between a Gamma Squeeze and a Short Squeeze, and How Do They Interact?

A short squeeze happens when a heavily shorted asset's price rises, forcing short sellers to buy back the asset to cover their positions, which drives the price even higher. A gamma squeeze is caused by market makers buying the asset to hedge the call options they sold.

While distinct, they often interact. A short squeeze can initiate a gamma squeeze, as rising prices make call options more attractive.

Conversely, a gamma squeeze's buying pressure can force short sellers to capitulate, triggering a short squeeze. They can feed into each other, creating an explosive upward spiral.