Options Mechanics
Calls, puts, Greeks, and the major strategies you need to know
On January 27, 2021, GameStop (GME) opened at $354 — up from around $20 in early January. Market makers who had sold call options at strikes of $50, $100, and $200 (thinking those prices were absurd for a declining brick-and-mortar retailer) were now deep underwater. As the stock surged through each strike, those market makers were forced to buy shares to hedge their Delta exposure — which pushed the stock higher, which forced more buying, which pushed it higher still.
This feedback loop — where options market-making mechanics amplify the underlying move — is called a gamma squeeze. In two weeks, the squeeze destroyed multiple billions of dollars of short-seller capital. The episode was not about Reddit traders being right about GameStop's business — it was about the mechanical interaction between options Greeks and underlying price action.
Options are not just directional bets with leverage.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 3 sections and ends with 5 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Option payoff at expiration — the math that determines profit and loss
- 2The Greeks — five sensitivities that determine how an option's price changes moment-to-moment
- 3Where to see this on the platform