When shares of Trump Media (NASDAQ:DJT) began trading under its new ticker on Tuesday, traditional media outlets could hardly understand the stock’s 50% rise. How could a loss-making firm in a cut-throat industry become worth almost $10 billion overnight?

Short sellers have also sensed blood. According to Fintel.io, a financial data provider, virtually all available DJT shares have been sold short. Borrowing fees currently stand at over 210%, making it the most expensive U.S. company to short sell.

Both sides, however, could be in for a surprise. Over the past several weeks, trading in DJT’s call options has surged. On Monday alone, over 60,000 out-of-the-money bullish options traded hands. Though Trump Media appears to have no clear path to profitability, shares could still rise to $100 or more on a gamma squeeze.

Short seller beware… Trump Media’s true believers (and its speculators) could send the stock to the moon.

DJT Stock: What Is a Gamma Squeeze?

Gamma squeezes happen when stock prices suddenly rise quickly, forcing options market makers to buy shares to hedge their positions. This is why AMC Entertainment (NYSE:AMC) rose to record highs in 2021 and potentially why Nvidia (NASDAQ:NVDA) is doing the same today.

That’s because options market makers are primarily interested in earning commission fees, not betting on a stock’s direction. So, for every call option they sell, these traders typically buy an equivalent number of shares to hedge their bets. (The exact ratio needed is known as the “delta”). If shares go up, rising stock prices offset the falling value of short calls. And when stocks fall, the premium from selling options offsets the loss.

Ordinarily, this system works incredibly well. Large firms like Apple (NASDAQ:AAPL) will see hundreds of thousands of option contracts traded daily with virtually no impact on the stock’s underlying price.

However, out-of-the-money (OOM) options can occasionally trigger a self-fulling effect. Rising stock prices increase an OOM option’s “delta,” and the speed of this change (known as “gamma”) peaks as the underlying stock price converges with the option’s strike price. That means rising stock prices force options market makers to buy more stock, which causes higher stock prices, and so on at an accelerating rate. At a certain point, stocks can end up with a “gamma squeeze,” where rising share prices trigger out-of-control buying.

An Example from DJT

Let’s consider a concrete example. On Monday, Trump Media’s $85 call options traded at $1.40, while a $90 call option traded at $1.10. ($85 calls pay out if share prices rise above $85, and $90 calls do so at $90 or above).

The price difference between these two contracts is 30 cents. So, any market maker selling a $90 contract will hedge their bets so that every $5 increase in DJT’s stock price (the difference between $90 and $85) comes out to 30 cents, or $30 per 100-share contract.

In this case, the market maker buys 6 shares of DJT for every 100-share contract, eliminating their risk of rising stock prices. (A $5 increase of 6 shares gives the market maker a $30 profit to offset the loss from the option).

However, as DJT rises in price, so too does the “delta.” Using the same price data above, the price difference between $50 and $55 options increases to $1.19, or $119 per 100-share contract. In other words, an option close to the money now requires market makers to buy 23.8 shares (119 divided by 5) to offset a $5 gain.

This can cause a cascading effect. A market maker that initially bought 6 shares to offset a $90 option will find themselves buying even more stock as prices go up. And as “gamma” peaks, so too does the rate that hedgers need to buy.

The Trump Effect

Deeply OOM bets rarely pay off. Even Trump Media’s Digital World SPAC has only seen two 100% gaining days, and none have happened since 2021. It’s why even companies like AMC Entertainment and GameStop (NYSE:GME) today rarely see deeply out-of-the-money options traded.

But Trump Media has stirred up animal spirits. Since last week, trading activity of these moonshot bets has surged. DJT currently has over 40,000 OOM call options contracts expiring this Thursday alone, and roughly 14,000 of these contracts are betting that DJT will rise above $90.

This creates a “coiled spring” effect since so many low-priced options are now in play. For every OOM option written, dozens of shares might still get bought as DJT prices keep going up.

What’s Trump Media Worth?

In the long run, Trump Media will be worth some multiple of the profits it generates. Mature firms like Facebook parent Meta Platforms (NASDAQ:META) trade at 33 times earnings, while Pinterest (NASDAQ:PINS) does so at 34x. Most analysts today are projecting no profits for Trump Media, which will peg its long-term value at zero. This is one reason why shares are so expensive to short. (Another is that put sellers must also hedge their bets with short sales).

The medium term is more interesting. Companies like Snap (NYSE:SNAP) and Reddit (NYSE:RDDT) can lose money for years and still be worth billions. As long as there’s potential for earning profits someday (or getting sold to another company that can make it happen), then these stocks are generally priced at some multiple of their active users. Assuming Truth Social grows its 5-million fanbase to 20 million this year, using a $10-per-user multiple (in line with Reddit and Discord) brings its value to $200 million, or $1.50 per share before cash consideration. Growth to a 100-million user base brings its value to $1 billion, and so on.

Meanwhile, the short term is the most fascinating, especially in the case of Trump Media. That’s because anything can happen on a short enough time horizon. Dogecoin (DOGE-USD) became worth as much as $90 billion in 2021 after Elon Musk and other super-fans promoted the cryptocurrency. And Lucid Motors (NASDAQ:LCID) was worth as much as $125 billion on the promise of beating Tesla (NASDAQ:TSLA) at its own game. Donald Trump is one social media post away from doing the same with his loyal fan base.

Trump Media also has the advantage that very few of its 135 million shares are currently tradable. I estimate that only 30 million of original DWAC stock and 8.3 million in converted stock is available on the open market.

That means even small changes in share prices can have outsized effects on the stock. The 40,000 options expiring this Thursday, for instance, could require close to a half-million shares to fully hedge if prices continue to rise.

That gives DJT essentially unlimited upside over short enough time periods. Analysts today might call its $60-plus price a “valuation that defies logic.” But where meme stocks are concerned, these logical valuation metrics are for the birds. As long as prices keep going up, bullish betters will keep piling in.

On the date of publication, Thomas Yeung held no positions in any stock mentioned in this piece. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.