A common scenario is that many investors buy a large number of call options on a stock. Market makers who sell those calls may buy shares of the underlying stock to reduce their risk. This is called delta hedging.

As the stock price rises, the Delta of those call options usually increases. Gamma measures how much Delta changes when the stock price changes. As Delta gets larger, market makers may need to buy even more shares to maintain their hedge.

This can create a feedback loop:

Investors buy calls → market makers buy shares to hedge → the stock price rises → call Delta increases → market makers buy more shares → the stock price rises further

This self-reinforcing process is called a gamma squeeze.

It is different from a short squeeze. A short squeeze is mainly caused by short sellers being forced to buy back shares, while a gamma squeeze is mainly driven by options market makers dynamically buying shares to hedge their short call exposure.

Gamma squeeze = heavy call buying causes market makers to keep buying shares for hedging, which can push the stock price even higher.