(Bloomberg) — 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%.
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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 have 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.
“These 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 Sunday night 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 $6 billion 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. Here’s a closer look at some financial metrics that explain why:
Options
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 time the average over the past month. Calls led as large numbers of $30 and $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.
Mixed Orders
A driver of 2021’s craze was that the bulk of retail traders didn’t already own GameStop, let alone at higher prices. 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. Even with the pop, GameStop is far from an intraday peak. The stock would need to more than quadruple from Monday’s close to reach that peak.
Less Money to Buy Stocks
When Roaring Kitty and now GameStop Chief Executive Ryan Cohen kickstarted the meme craze, interest rates were near historic lows, while equity markets — and cryptocurrencies — were soaring as the Federal Reserve and Congress pumped trillions of dollars in stimulus aid to prop up an American economy gripped by recession in the middle of a pandemic.
The previous GameStop saga took center stage three years ago, before the Fed began lifting rates in March 2022 at the fastest pace in a generation to cool inflation. Now, the stock market — and the economy — are in a different place, and retail traders have seen a reversal of fortunes as high borrowing costs diminish their holdings in risky assets.
That’s on top of the fact that credit-card delinquencies at the smallest banks are running at the highest rate in 30 years, and those at large banks are at decade highs. That means liquidity for small-time investors is likely at a low, and the end of stay-at-home orders indicates the YOLO crowd is back at work or school and not glued to a trading app.
Memecoin Mania
The vast nature of cryptocurrencies with no inherent value has also sopped up a chunk of retail investor cash. The meme craze surrounding Gill’s return has spilled into the world of crypto, as a token created at the end of January utilizing GameStop’s name, logo and ticker rose more than 1,400% on Monday before paring some of that surge, according to CoinGecko data, despite having no affiliation with the company.
The so-called memecoins are prone to wild swings based on the popularity of the tokens across social media platforms. The coins, which often trade for fractions of a penny, can see surges in volume and price based on a few traders pumping in small amounts of cash.
Scars From 2021
The 2021 meme-stock frenzy that upended the US stock market and schooled some Wall Street pros didn’t end well after the bear market of 2022. The YOLO crowd lost all of the money made in the meme-stock rush, data compiled by JPMorgan Chase & Co. showed in 2022.
So, while the group’s activity on Monday is rekindling memories of a 2021 rush, it’s not there yet. Trading orders from retail traders in stocks and exchange-traded funds accounted for 24% of the market’s total volume in the first quarter of 2021, estimates compiled by Bloomberg Intelligence show. That compares with a little more than 17% in the first quarter of 2024, BI’s data show.
—With assistance from Carly Wanna and Jessica Menton.
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