“Someone Played That Beautifully”: Why an Expert is Wary of the Meme Stock’s Recent Resurgence - Latest Global News

“Someone Played That Beautifully”: Why an Expert is Wary of the Meme Stock’s Recent Resurgence

Anthony Ramos plays a fictional character in “Dumb Money.”Sony pictures

  • There’s something wrong with the recent explosion of meme stocks like GameStop, writes a market professional.

  • Call options that were well out of the money saw trading volume explode just before Roaring Kitty returned.

  • “It’s probably all legal, but someone played it beautifully,” said Steve Sosnick, a strategist at Interactive Brokers.

The recent explosion in meme stocks like GameStop and AMC Entertainment appears suspicious, according to a market expert.

Steve Sosnick, market strategist at Interactive Brokers, highlighted in a recent note that GameStop saw a surge in well-out-of-the-money call options trading volume ahead of Roaring Kitty’s return to social media.

“These options are typically active, but there has been a significant increase in volume and open interest in upside call options expiring this Friday compared to recent sessions,” Sosnick said on Monday, the same day the meme stock explosion began. “Something started brewing at the end of last month.”

Sosnick highlighted that the $20, $25 and $30 strike call options expiring this Friday saw a massive increase in trading volume last week, with tens of thousands of options purchased on May 10.

GameStop stock closed at $17.46 on Friday, meaning the stock would have to rise 15-72% by Friday for the options to make money, otherwise they would expire worthless.

Since then, GameStop shares have risen as much as 271%, reaching a high of nearly $65 on Tuesday. The stock is trading at about $35.72 as of Wednesday afternoon. This means these call options are still in the money, providing huge profits to whoever bought them last week.

The May 17 $30 call option on GameStop closed at $0.43 on May 9 and peaked at $31 on Monday, marking a massive two-day gain of more than 1,000, according to data from Yahoo Finance represents 7,000%.

Excluding call options, GameStop stock has gained since late April, rising about 60% from April 24 to March 10, despite no fundamental news about the company.

“But this bullish trend does not fully explain why we have seen such an explosion in open interest in options,” Sosnick said.

“A suspicious person might wonder why ‘Roaring Kitty’ decided to return to social media today. “Given my previous experience analyzing the periodic bouts of meme stock activity, consider me suspicious,” Sosnick said.

Sosnick compared the current rise in GameStop shares to trading activity in Bed Bath & Beyond shares in August 2022, when current GameStop CEO Ryan Cohen bought shares of the now-bankrupt retailer. The disclosure of Cohen’s purchases led to a massive rise in Bed Bath & Beyond’s shares, but shortly after it was revealed that Cohen had sold his shares in the rally, the stock plunged. Bed Bath & Beyond is now bankrupt.

“I’m sorry, but I can’t shake the feeling that something similar is happening today, except a social media darling isn’t required to file insider activity with the SEC – he’s not an insider. In both cases, nothing.” There was specific talk about the stocks, and there were literally no words in the social media post. So it’s probably all legal, but someone played it beautifully,” Sosnick said.

Shares of GameStop and AMC Entertainment were both well below their Tuesday highs, down 45% and 56%, respectively, in Wednesday’s trading session.

Read the original article on Business Insider

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