What occurs during a gamma squeeze?

A gamma squeeze occurs primarily as a result of increased demand for options, which leads to a rapid price increase of the underlying stock. When many options are purchased, particularly call options, the market makers who sell those options often need to hedge their exposure. To do this, they buy shares of the underlying stock to become delta neutral. As the price of the stock increases due to this buying activity, the delta of the options also increases, leading market makers to buy even more shares to maintain their neutral position. This self-reinforcing cycle can result in a significant and rapid increase in the stock price, creating the phenomenon known as a gamma squeeze.

This contrasts with the other choices, which do not encapsulate the process or implications of a gamma squeeze. While increased volatility may occur in the stock market, it doesn't specifically define or describe a gamma squeeze. Similarly, triggered sell-offs or stable pricing in the options market do not reflect the primary mechanism of increased demand for options leading to rising stock prices.