Business

The latest frenzy of meme stocks is not about short squeeze

The meme stock is back, but there is one big change. This time, short sellers are not big players on the market.

Individual investors are preparing for weeks to underwrite hedge funds betting on their favorite stocks. In January, their strategy to band together online to send a handful of stocks like GameStop Co., Ltd.

“To the Moon” allowed them to inflict sharp losses on deep-pocket enemies and claim victory over Wall Street pros.

In recent games of enthusiastic trading on unlikely momentum stocks, short squeeze opportunities seem to be much less. It forces bearish investors (usually sophisticated market participants like hedge funds) to buy back the stocks they were betting on as they fall and curb their losses as stocks begin to rise.

The number of short-sold outstanding shares, known as short-selling, remains low compared to the levels seen in January for popular meme stocks such as GameStop and Clover Health Investments. Co., Ltd.

Clean energy fuel Co., Ltd.

GameStop has been very popular on Reddit’s WallStreetBets online forum since the first wave in January, and its inventory has skyrocketed by over 1000% this year. According to IHS Markit data, short sales accounted for about 17% of outstanding shares as of June 9, compared to 102% at the beginning of the year...

For AMC Entertainment Holdings Co., Ltd.

Another meme stock, which surged more than 1900% this year, has a cloudier image. Although the number of shortfalls is increasing, the outstanding share ratio has fallen from a peak of over 24% in early January to about 20%. The cinema chain has sold more than 100 million shares since January, converting its debt to equity and curbing the short interest ratio.

Still, the data suggest that investors like hedge funds aren’t flocking to transactions betting on falling prices of meme stocks.

Analysts say call options are likely to be driving the market even further this time around. These are contracts that give the buyer the right to buy shares on a particular date and price. This type of security benefits the buyer if the stock rises.

A surge in call option activity can force some participants to buy shares, like short squeeze. However, instead of trapping bearish investors, more active call options will allow market makers such as banks to buy stocks to hedge their positions. This is because call option sellers are obliged to deliver their shares when the contract is exercised.

Helen Thomas, founder of UK-based financial research firm Blonde Money, said investors like hedge funds could buy certain stocks to cause this phenomenon, known as gun masks. It was. Some retail investors trade options and post screenshots of their position on the Reddit forums.

Wall Street is in a turmoil over GameStop stock after members of Reddit’s popular WallStreetBets forum have encouraged betting on video game retailers. The WSJ explains how options trading is driving action and what is at stake. (Video from 1/29/21)

However, while this type of squeeze can accelerate the rise, it can also add juice to the fall in stock prices.

Charlie Makerigott, a cross-asset strategist at Nomura Holdings, said:..

“It creates these crash-up and crash-down cycles.”

Many Reddit users show no signs of worrying that the ascending trajectory of meme stocks could suddenly reverse. Clover Health has recently become a favorite of those who have decided to design another battle with hedge funds, increasing its inventory by about 59% this week.

“$ CLOV This is a great setup for a spectacular short squeeze,” a user named u / mamagpepper wrote on Wednesday at WallStreetBets, mentioning Clover Health’s stock quote. Clover Health has recently been short selling about 10%.

GameStop remains immensely popular on Reddit’s WallStreetBets forum.


Photo:

John Smith / VIEWpress / Getty Images

This time, short sellers may be more cautious about competing with retailers. Retailer bets generally ignore metrics such as profits and sales prospects.

“Hedge funds are afraid to hold significant short positions. [in meme stocks]Lorenzo Dimatia, Chief Investment Officer of Sybilla Capital, said: “AMC stocks are probably worth $ 10, but that doesn’t mean they’ll be there right away. The risk is much greater than usual because the retail army knows nothing about the valuation.”

AMC traded at $ 42.81 at the end of Thursday.

Individual investors do not necessarily direct their efforts to the most scarce stocks.

Share your thoughts

How do you think the meme stock epidemic will affect the market in the long run? Join the conversation below.

Bed bath & beyond Co., Ltd.

According to IHS Markit, the popularity surged in January, but there are short sales of about 31% of the total unpaid amount. However, according to TopStonks.com, which tracks the stock mentioned on Reddit, the stock has lost a lot of brilliance on WallStreetBets since early 2021 and wasn’t one of the most popular stocks last week. did. Bed bath shares have risen by more than 77% this year.

On the other hand, the possibility of designing a sharp fall in some meme stocks makes bearish bets more attractive to some investors.

Sybilla’s Di Mattia is considering a bet that the value of AMC’s stock will go down.

“If it’s like GameStop in January, it could double again before it collapses, which is why it’s hard to short,” he said.

Write to Anna Hirtenstein (anna.hirtenstein@wsj.com)

Copyright © 2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

The latest frenzy of meme stocks is not about short squeeze

Source link The latest frenzy of meme stocks is not about short squeeze

Back to top button