Revenge Of The Meme Stock Mania

Late last week, Goldman noted that retail investor activity was picking back up, with animal spirits stirring anew in some “prototypical meme” names, as David Kostin put it.

A few sessions later, GameStop and AMC had to be halted for volatility just nine minutes into the cash session. Both names subsequently embarked on a wild ride, punctuating a multi-day surge that found a Bloomberg basket of meme stocks rising for five straight sessions on huge volume.

The figure (below) is comical, assuming you find humor in abject absurdity.

Why does this matter? Well, because the Reddit crowd is weaponizing gamma again. At some point in 2020, retail investors discovered the power of collective action. By piling into options en masse, they could effectively make their own luck by creating a self-fulfilling prophecy.

They’re clearly deploying that strategy again, emboldened by a multi-week positioning-driven rally in the benchmarks which helped compress vol and sling-shot stocks higher. Note that on Monday, when AMC rose 45% (!) on enormous volume, the most actively traded calls were short-dated.

“The WSB crowd is back in a major way on this equities bounce, where for the past two weeks, we see the collective ‘upside grabbing’ activity at levels only previously witnessed during prior speculative frenzy periods,” Nomura’s Charlie McElligott said Tuesday, referencing the figure (below). The bank’s basket of 10 popular meme stocks witnessed a two-standard deviation jump in aggregate daily call volume.

Nomura, BBG

Charlie reiterated the playbook. Buyers are “grabbing into short-dated weekly (or less) OTM upside, looking to create gamma squeezes,” he remarked, noting that premium spent on Tesla options Monday exceeded the combined total for Amazon, SPY, QQQ, NVIDIA, Apple and GameStop, for good measure.

As most readers are doubtlessly aware, Tesla managed to engineer a mammoth rally early this week by pre-announcing a stock split two years in advance in an extremely awkward tweet.

On Tuesday, Robinhood said it would extend trading hours to 8 PM ET for its customers. In a blog post, the company explained that its users “often tell us they’re working or preoccupied during regular market hours, limiting their ability to invest on their own schedule or evaluate and react to important market news.”

In other words, Robinhood users are annoyed with their real jobs, because every minute spent working is a minute not spent trying to become the next “Roaring Kitty.” Robinhood, apparently unbothered by the risk of perpetuating all manner of stereotypes about the perils of gamified stock trading, went on to say that,

In fact, we’ve seen a community of Robinhood early birds and night owls who log in exclusively outside of regular market hours. They’re juggling a lot, from full-time jobs to school, families and side gigs. Our new extended trading hours for equities will give them more opportunities to manage their portfolio at a convenient time for them, whether that’s in the early morning or in the evening.

Forgive me, but someone who needs a full-time job and a “side gig” to support a family probably shouldn’t be trading stocks actively. That’s self-evident to the point of being tautological, but I feel compelled to reiterate it on occasion.

No one should make the mistake of thinking Robinhood isn’t committed to taking things even further. The company left no room for doubt in that regard. The title of Tuesday’s blog post: “The Future of Investing is 24/7.” The shares rose 24%.

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7 thoughts on “Revenge Of The Meme Stock Mania

  1. Citadel et al are alrady laughing their butts off.
    Without the volume and direction of cash markets, bid/ask spreads will be 10 times wider over the weekend.
    Robinhoods’ orderflow just became even more valuable!

  2. Although I enjoy watching the X Games (extreme sports), I have no desire to try anything so foolish. I do, however, always hope those snowboarders don’t break their necks while attempting to be the next Shaun White.
    We now have “X trading”, as in extreme trading.

  3. It has been reported that Joseph Kennedy once said: “If shoeshine boys are giving stock tips, then it’s time to get out of the market.” We may soon see the timeless wisdom of this statement.

  4. A friend of mine was thinking of selling naked puts on both Amazon and Google during the last dip. I’m glad I talked him out of that one! Crazy! However, the same friend is killing it on SPY 440 Sept Calls he bought at around the same time.

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