Volumes in short-dated options, while still elevated, are nowhere near the levels seen in 2021. — Bloomberg
NEW YORK: GameStop Corp shares more than doubling on no fundamental news. Short sellers getting squeezed and retail traders using same-day options to amplify gains in otherwise beaten-down stocks. Nonsense crypto coins adding more than 1,000%.
That was Monday. But it could just as easily describe early 2021, when the meme-stock frenzy captured the popular imagination and day traders sent stocks on inexplicable wild rides.
However a closer look at the magnitude and zaniness back then shows how much further this latest meme mania needs to go to match the original.
In the first go-round three years ago, GameStop soared more than 1,000% in a few days, as retail traders took to Reddit Inc’s Wall Street Bets forum to rally against Wall Street bigwigs who were short the stock. Today, those “Reddit Raiders”, once flush with time and cash from pandemic-era stimulus and work policies, are largely back to work and bearing the burden of higher interest rates.
Some got in late, and even with the latest surge are sitting on losses.
In addition, traders with an itch to gamble now have a bevy of choices for wagering.
Casinos and racetracks were closed back then due to Covid, leaving stocks as the main game in town.
Since then gambling has gone mainstream, and anyone who wants to place a bet can basically get action on any game they want from a few clicks on their phone.
Professional short sellers have also largely given up on taking aim at companies with relatively small share floats, worried that the power of social media could foment a squeeze.
And volumes in short-dated options, while still elevated, are nowhere near the levels seen in 2021.
“There are always blips, they’re like solar eclipses. They happen and then they go away for a long time and then they happen again,” said Peter Atwater, president of Financial Insyghts and an adjunct professor at William & Mary.
“But if you look at them they always appear at extremes in sentiment.”
Monday’s buying was triggered by a single post on X on Sunday from Keith Gill, the retail-trading icon who goes by the moniker “Roaring Kitty” and drove the original mania before disappearing from social media in June 2021.
In less than an hour, GameStop added some US$6bil in market value as traders pumped Gill’s return to tweeting as a sign that the boom was back.
Former meme darling AMC Entertainment Holdings Inc rallied more than 80%. And newly listed Reddit powered higher by as much as 14%.
In cryptocurrencies, the Roaring Kitty token is up more than 4,000%.
Most of the moves pared back sharply as the session moved into the afternoon, GameStop closed up 74%, tamping down speculation about the start of another meme mania.
Options volumes have picked up in the past few weeks, but they’re nothing like the levels seen in 2021.
About 700,000 contracts changed hands on Monday – more than four times the average over the past month.
Calls led as large numbers of US$30 and US$34 contracts moved.
However, during peak meme mania in 2021, millions of contracts traded in a single session.
The most active day that year – Jan 22 –saw 8.5 million contracts change hands.
In January of that year, GameStop was consistently the most bought stock across trading platforms that cater to individual investors with buy orders vastly outpacing those to sell.
On Monday, that wasn’t the case. While GameStop was the most traded stock on Fidelity’s platform, orders to sell shares nearly mirrored buys.
This indicates that the retail crowd was selling to each other rather than being the sole driver of the stock gains. — Bloomberg
