Retail traders reignite rally in GameStop shares
Reuters
Published Nov 29, 2023 06:34AM ET
Updated Nov 29, 2023 12:56PM ET
By Medha Singh and Saqib Iqbal Ahmed
(Reuters) -Retail traders powered a nearly 20% jump in GameStop (NYSE:GME) shares to a two-month high in regular trading on Wednesday, extending a rally ahead of the company's quarterly results next week and underscoring a return in appetite for risk.
The meme stock is up nearly 36% over the last two sessions at $15.31.
"Speculation is back ... and GameStop is ground zero for speculation," Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ:IBKR), said.
AMC Entertainment (NYSE:AMC) and Cathie Wood's ARK Innovation ETF - other favorites among retail traders - were up nearly 3.5% and 0.5%, respectively.
The recovery in meme stocks comes as the S&P 500 closes in on its highest level for 2023 on hopes U.S. interest rates have peaked, breathing life into speculative trading that has struggled this year.
GameStop closed about 13% higher on Tuesday. Individual investors purchased $1.92 million worth of the company's shares on a net basis on Tuesday, their highest since Aug. 6, data from Vanda (NASDAQ:VNDA) Research showed.
Both stocks were among the most discussed by traders on social media site stocktiwts.com on Wednesday.
GameStop is set to post third-quarter results on Dec. 6, with analysts expecting its net loss to narrow to $25.6 million from $93.4 million a year earlier.
About 21.6% of GameStop's shares were sold short, according to data and analytics firm Ortex, and bearish investors stand to lose about $200 million on Tuesday and Wednesday combined.
"Some short sellers may be concerned both by this price move but also that GameStop will release better-than-expected earnings next week," said Peter Hillerberg, co-founder of Ortex.
The surge in GameStop shares was backed by strong options activity. Some 230,000 GameStop options contracts traded by 11:38 a.m. (1638 GMT) with the bulk in call options, typically bought to bet on shares climbing higher.
Large purchases of out-of-the-money call options - contracts that are not profitable but stand to gain in value as the stock climbs - can sometimes give an additional lift to a stock's price.
"As long as people continue to buy calls that should pressure the stock to continue going higher," said Brent Kochuba, founder of options data platform Spotgamma.
"Another 15% or 20% (move) higher is still on the cards."
With GameStop shares at around $15, call options betting on the stock finishing higher than $16 by Friday were the most heavily traded GameStop options.
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Sosnick, however, cautioned that speculative rallies in the recent past have been quick to peter out.
Shares of GameStop are down 27% this year through Tuesday's close, while those of AMC have shed 80% of their value in the same period.
Written By: Reuters
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