The SPAC Gamma Squeeze

by | Jan 6, 2022

“Gamma squeeze” has been a popular term thrown around in the mainstream over the past year, really kicking off with the GME and AMC mania of late 2020 / early 2021. This trend spilled over into SPACs as well, predominantly in the form of heavily redeemed (i.e. low float) SPACs. This post is aimed to, in plain English, explain the concept of a gamma squeeze, where they happen in SPACs and how you can be on the lookout for them.  

What is a Gamma Squeeze? 

In very simple terms, an option’s delta represents the amount that option’s price will move relative to a move in the underlying share price. A high delta means that a given option’s price will move a lot if the stock moves, and likely means the stock is trading higher than or very near that option’s call price.  

Gamma represents the change in delta resulting from the underlying security change. As a result, as a stock price rises, so does its delta (the amount it rises varies on where the given option was struck). Market makers, those who sell options to the investors, often need to hedge, or cover, their synthetic short positions by buying common shares. 

This circular effect, the sale of call options and subsequent purchase of stock, results in an increased stock price that can be quite pronounced, and is often referred to as a gamma squeeze given a sharp rise in gamma.  

How do they happen in SPACs? 

This dynamic in SPACs results from high public shareholder redemptions at the time of the merger vote resulting in a very low tradeable float immediately following the business combination, causing wild price action in the remaining shares available to trade.  

The low float is due to the fact that SPAC founder shares, PIPE investors, and existing company shareholders are all (usually) locked up from trading for a certain period of time following a DeSPAC. So, for example, if 95% of a $200M SPAC trust redeems at vote that leaves just $10M in the trust, or 1M shares available to trade in the open market at the time of DeSPAC.  

Oftentimes, SPACs with pending deals have large amounts of call options purchased, whether it be from retail or institutional investors. The resulting low public float from shareholders who redeemed causes an even further scarcity of available to trade shares, and can skyrocket those shares much higher, much quicker.  

SPAC gamma squeeze in action: IRNT shares skyrocketed > 270% in the days after it DeSPAC’d with >90% redemptions.

How can I spot an opportunity in the future? 

As SPACs head towards their merger votes those with high option volume and trading sub-NAV are at the biggest risk of experiencing a gamma squeeze. This is due to the possibility that 1) brokers may need to further hedge their derivative positions and 2) the SPAC faces the possibility of a high redemption situation.  

Now, many other factors come into play including the size of the SPAC (75% redemptions of a $1B SPAC is a lot different than on a $100M SPAC), trading volume and the volatility.  

But, Beware as Gamma Squeezes are Fast and Sharp Drops Follow

The squeeze rallies are often very short lived and can cause massive (even intra-day) volatility in these names that, as a reminder, may not be very liquid at all. In addition, the market and market-makers have recently been much more attune to the dynamic and have been better able to position themselves heading into these situations.  

Example High Redemption DeSPACs

Redem %SPAC TickerSPACDeSPAC TickerDeSPAC CompanyDeSPAC DateClose on 5-Jan-202252 Week High% Off High
97%THMAThimble Point Acquisition Corp.PEARPear Therapeutics Inc3-Dec-21$6.42$10.52-39%
97%LWACLocust Walk Acquisition Corp.EFTReFFECTOR Therapeutics Inc25-Aug-21$7.47$27.17-73%
95%BSNBroadstone Acquisition Corp.EVTLVertical Aerospace Ltd16-Dec-21$9.05$12.84-30%
95%GRNVGreenVision Acquisition Corp.HLBZHelbiz Inc13-Aug-21$5.47$28.23-81%
94%ENFA890 5th Avenue Partners, Inc.BZFDBuzzFeed Inc3-Dec-21$5.21$10.66-51%
94%LIIILeo Holdings III CorpLOCLLocal Bounti Corporation22-Nov-21$6.66$10.62-37%
93%LIVKLIV Capital Acquisition Corp.AGILAgileThought Inc23-Aug-21$5.57$23.53-76%
93%ATMRAltimar Acquisition Corp. IIFATHFathom Digital Manufacturing27-Dec-21$6.15$10.60-42%
93%MAACMontes Archimedes Acquisition CorpROIVRoivant Sciences Ltd30-Sep-21$8.89$13.52-34%
93%AMHCAmplitude Healthcare Acquisition CorporationJSPRJasper Therapeutics Inc24-Sep-21$7.69$16.42-53%
93%DFNSLGL Systems Acquisition CorpIRNTIronNet Inc26-Aug-21$3.82$41.40-91%
92%YACYucaipa Acquisition CorporationSSUSIGNA Sports United NV14-Dec-21$8.90$11.19-20%
91%SPNVSupernova Partners Acquisition Company IncOPADOfferpad Solutions Inc1-Sep-21$6.07$19.97-70%
91%NSHNavSight Holdings, IncSPIRSpire Global Inc16-Aug-21$3.15$18.45-83%
91%SOACSustainable Opportunities Acquisition Corp.TMCTMC the metals Co Inc9-Sep-21$1.86$12.45-85%
91%ATHNAthena Technology Acquisition Corp.HLGNHeliogen Inc30-Dec-21$9.76$15.52-37%
90%SCPESC Health CorporationRKLYRockley Photonics Holdings Ltd11-Aug-21$4.38$16.00-73%
89%KURIAlkuri Global Acquisition Corp.BBLNBabylon Holdings Ltd21-Oct-21$6.30$11.71-46%
89%CTACCerberus Telecom Acquisition CorpKOREKORE Group Holdings Inc30-Sep-21$6.96$11.00-37%
89%SGAMSeaport Global Acquisition CorpRDBXRedbox Entertainment Inc22-Oct-21$6.92$17.93-61%
88%GNRSGREENROSE ACQUISITION CORPGNRSGreenrose Holding Co Inc29-Nov-21$4.20$11.13-62%
88%TWCTTWC Tech Holdings II CorpCLBTCellebrite DI Ltd30-Aug-21$7.22$12.15-41%
88%FOREForesight Acquisition Corp.PIIIP3 Health Partners Inc3-Dec-21$5.72$11.44-50%
87%TMTSSpartacus Acquisition CorporationNNNextnav Inc28-Oct-21$8.83$12.78-31%
87%CENHCentricus Acquisition Corp.ARQQArqit Quantum Inc3-Sep-21$18.37$38.06-52%
87%KSMTKISMET ACQ ONEGDEVNexters Inc24-Aug-21$8.00$10.90-27%
87%NBANew Beginnings Acquisition CorpMIMOAirspan Networks Holdings Inc13-Aug-21$3.95$10.80-63%
85%MRACMarquee Raine Acquisition Corp.ENJYEnjoy Technology Inc15-Oct-21$3.90$11.18-65%
85%ROTRotor Acquisition CorpSTRCSarcos Technology & Robotics Corp24-Sep-21$8.92$11.12-20%
84%CFACCF Finance Acquisition Corp. IIILIDRAEye Inc16-Aug-21$4.89$13.71-64%
84%RTPZReinvent Technology Partners ZHIPOHippo Holdings Inc2-Aug-21$2.61$14.24-82%
84%MCADMountain Crest Acquisition Corp. IIBTTXBetter Therapeutics Inc28-Oct-21$4.88$17.14-72%
84%DGNSDRAGONEER GR OPCVTCvent Holding Corp8-Dec-21$8.08$13.29-39%
84%CHFWConsonance-HFW Acquisition CorpSRZNSurrozen Inc11-Aug-21$5.32$12.03-56%
83%STWOACON S2 Acquisition CorpGWHESS Tech Inc11-Oct-21$10.60$23.80-55%
83%HCAQHealthCor Catalio Acquisition Corp.HYPRHyperfine Inc22-Dec-21$7.20$10.92-34%
82%NGCANextGen Acquisition Corp. IIVORBVirgin Orbit Holdings Inc29-Dec-21$6.29$10.47-40%
80%DBDRRoman DBDR Tech Acquisition Corp.CMPOCompoSecure Inc27-Dec-21$7.23$10.64-32%
80%NGACNextGen Acquisition CorpXOSXos Inc19-Aug-21$2.69$13.89-81%
80%GLEOGalileo Acquisition Corp.SHPWShapeways Holdings Inc29-Sep-21$3.13$10.83-71%
80%MACQMCAP Acquisition CorporationADTHAdTheorent Holding Company Inc22-Dec-21$6.05$10.21-41%
<a href="https://www.boardroomalpha.com/author/draps/" target="_self">David Drapkin</a>

David Drapkin

Spent his formative years at Goldman Sachs and now embraces the start-up life in NYC. A long suffering Oakland (Las Vegas) Raiders fan and graduate of the Wharton School at the University of Pennsylvania. Semi-professional go-kart racer waiting for his shot.

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