Meme stock phenomenon

One of the main drivers of the meme stock mania has been the "counterattack" attitude of countless traders with small accounts but working together against Wall Street hedge funds.。Companies such as Melvin Capital have been betting on decaying companies whose heyday is long past。GameStop's network of brick-and-mortar retail stores is a huge burden on its balance sheet, and the company doesn't seem to realize that the game has gone online.。AMC's cinemas once reached their highest annual attendance of 1.6 billion two decades ago, but it now seems unlikely that such attendance will ever happen again。

GameStop Corp (NYSE: GME)

GameStop as an initial meme stock, and how it caught short sellers off guard, partly explains the dizzying price hikes involved at the height of the frenzy.。Between January 12 and 27, 2021, the value of this NYSE-listed stock increased by more than 1,641%.。

The buying pressure was triggered by a share of an in-depth fundamental analysis of the company that explains why GameStop is undervalued。This argument remains and GME is still trading at much higher price levels than before the frenzy。

The price of GameStop shares is still more than 500% above the closing price on December 31, 2020.。This raises obvious questions about the valuation models used to price the stock and reflects how GME is profiting from its high profile。

GME - New Management Team

The new management team that took over in 2019 replaced a nearly 23-year-old top executive who was willing to do things differently to continue to attract investors.。Former Chewy CEO and co-founder Ryan Cohen took over the leadership of GameStop in March 2021, leading the company's transformation into an e-commerce venture, marking another attempt by the company to unlock value and capitalize on its reputation.。

GME - still popular with day traders

For GME traders, there is still a stunning short-term price surge。Between March 14 and 28, 2022, the share price rose 142%, highlighting that the stock remains popular with day traders and speculators.。

Another feature of GameStop is that it still has the ability to increase significantly in terms of daily volume fluctuations, from 2.7 million to 16.8 million just two days later。

GameStop still has enough meme stock qualifications to attract speculators。While fireworks are not as high as they were in the first quarter of 2021, the potential for short-term shock action is still real.。

AMC Entertainment Holdings (NYSE: AMC)

Hedge funds seeking to short stocks must consider the underlying reasons why they believe the company is overvalued and the risk of being trapped in a vicious short squeeze。Melvin Capital's managers will prove just how brutal it is to be stuck on the other side of a short squeeze - not least because the damage is technically unlimited。The risk of this happening again has forced many hedge funds to look for alternative targets to short, meaning AMC management teams can re-evaluate their business models.。

AMC has made the most of this time。CEO Adam Aron has embraced the youthful image of many of its novice retail investors with a certain amount of confidence.。He is using their language, as evidenced by the company's bold expansion into non-homogeneous tokens (NFTs) associated with major film releases.。

Like GameStop, AMC still trades at a higher price than before the meme frenzy began。AMC stock is currently 624% above its December 31, 2020 closing price。Short-term volatile share price action and a surge in trading volume are also part of the AMC story。

In March 2022, AMC shares doubled in two weeks, even as other stock markets struggled with the prospect of inflation and rising interest rates.。Volume also surged, proving that AMC remains a favorite stock for day traders。

Blackberry Ltd (NYSE: BB)

Other meme stocks did not perform as well as the two main characters.。Blackberry Ltd on 31 December 2020 with 6.trading at $64 and now trading below $6 per share, giving up all of its 278% return in the first quarter of 2021.。

A scan of the volume report confirms that, at least for BB, the meme stock mania seems to have come and gone。A falling share price doesn't mean you can't buy Blackberry shares for other reasons.。

The company's planned foray into providing technology solutions to the automotive industry is a step in the right direction.。However, the company's cyber security division, which accounts for more than 50% of BB's total revenue, is still in doubt as to whether it can fund investments in this new market.。

How "Meme Shares" Changed Trading？

Mad meme stock events change the fortunes of companies involved and transform other areas of the trading community。

Meme Stock and Short Selling

During the peak of the meme stock frenzy, short sellers who were able to do so in time closed out their short positions。Those who hesitate are forced to rush to buy high-priced stocks to liquidate their short positions.。Losses caused by these short squeezes provide an immunity to the biggest meme stocks, but the trend is starting to reverse。

GameStop is worth $9.5 billion, but the amount of short positions is creeping back up。In March 2022, the value of short positions was 10.$200 million, but by May 2022, that number had soared to $2.3 billion, or about 22 percent of available stock..27%。

These statistics must be considered in context。GME's trading volume remains very high, while its size has a "days covered" ratio of 3.1 day, although high, it does not mean that the stock's only downward direction。The second factor to consider is that short positions in all stocks are increasing due to macro themes such as political uncertainty, rising interest rates and the threat of inflation。Even market darling Apple currently reports $22 billion in short positions, which equates to more than a day of total trading volume.。Companies that reported poor results in April, such as Wright Ed, were affected by short selling far more severely than GameStop。Leyte's short position as a percentage of shares outstanding in early May 2022 was 34.26%, equivalent to about 4% of the average trading volume.8 days。

Meme Stock & Options Market

One feature of the meme stock bubble is how retail investors use options to pressure short。By paying a small premium to purchase vanilla call options, small traders can create upward pressure through the options market as options market makers feel the need to purchase the underlying stock to hedge their exposure to their options positions。

This is an important moment for the derivatives market。Options have always been considered a financial instrument that only the most experienced traders can use。The meme stock trend proves that by following the basic principles of options trading, low-cost positions can be safely established in the market。

The increase in retail investor participation in options trading is a trend that is likely to continue。This analysis of how to use options to hedge risk considers ways to maximize the benefits of options trading.。

Meme Stock and Reddit

Without Reddit, the meme stock phenomenon is unlikely to happen。The platform's # WallStreetBets page still has about 11.5 million subscribers, which is more than the 1.7 million members recorded in December 2020.。The group's daily number of posts has dwindled and is now around 1,000 per day, compared to 64,000 per day at its peak.。That's not necessarily bad news for Reddit, as being caught off guard at the center of the storm was a bit of a shock, but the web movement may have gone downhill for the day-trading community.。

Meme Stocks & Brokers

The winners and losers of the meme stock mania are not limited to hedge funds and retail traders.。Brokers have also suffered reputational damage by stopping trading specific memes in the stock market at a time when small investors smell blood.。

The argument that the market is out of control and that clients need to protect themselves from losses is reasonable, especially since brokers are being carried away by a tidal wave of activity。Robin Hood, most of the trading activity takes place on this broker's platform, just as the situation reaches its climax, busting the bubble of buying pressure。To fund all these GME and AMC deals, Robin Hood had to raise $3.4 billion and shut down the meme stock market.。

For members of Reddit's # WallStreetBets group, the coincidence of Wall Street's bailout of Robin Hood and the steps taken to end the meme stock binge and eliminate the threat to the financial system are too coincidental.。The challenges Robin Hood has faced since its launch have transcended the meme stock frenzy, but falling out of favor with the trading community is bound to have consequences。For example, Robin Hood's monthly active users fell from 18.9 million in the third quarter of 2022 to 17.3 million in the fourth quarter, and similar statistics have driven Robin Hood's stock price down.。

Meme Stock & Trading Community

The fact that GameStop and AMC are still valued many times what they were before meme stocks even became "a thing" raises obvious questions about the valuation models used to price stocks.。"Market sentiment" is a key variable when trying to price a stock。However, a loosely organized group of retail investors communicating and sharing ideas online has changed the dynamics of the market and the permanence of the financial market.。

The binge of meme stocks in 2021 is the moment for retail investors to prove they are a force to be reckoned with。Good news for meme stocks that are taking advantage of this time and embracing the opportunity to reinvent themselves。AMC, for its part, has adopted a forward-looking business plan in line with a meme mentality。