The recent surge in meme stocks like GameStop (GME) and AMC Entertainment (AMC) has raised eyebrows in the financial community. Market expert Steve Sosnick, a strategist at Interactive Brokers, has pointed out some suspicious trading activities that could indicate market manipulation.
Unusual Options Activity
GameStop saw an unexpected spike in deep out-of-the-money call option trading volumes just before the return of the influential social media figure “Roaring Kitty.” According to Sosnick, this surge in options activity is unusual and potentially indicative of coordinated market behavior.
“Deep out-of-the-money call options typically see some activity, but the recent volume and open interest in GameStop’s upside call options expiring this Friday have been exceptional,” Sosnick remarked. On the day the meme stock rally began, there were significant increases in the $20, $25, and $30 strike call options. On May 10, tens of thousands of these options were purchased, setting the stage for a dramatic price movement.
Dramatic Stock Movements
GameStop closed at $17.46 on Friday, meaning the stock would need to rise between 15% and 72% by the following Friday for the options to be profitable. Remarkably, GameStop’s stock surged by as much as 271%, peaking at nearly $65 on Tuesday, before stabilizing around $35.72 by Wednesday afternoon. This movement brought substantial gains to those who had bought the call options, making them significantly profitable.
For example, the May 17 $30 call option on GameStop, which closed at $0.43 on May 9, peaked at $31 on Monday, marking an astonishing two-day gain of over 7,000%, according to Yahoo Finance data.
The Underlying Uptrend
While GameStop’s stock has been on an upward trend since late April, with a 60% increase from April 24 through May 10 despite a lack of fundamental news, Sosnick believes this alone doesn’t explain the surge in options trading interest.
“The uptrend in GameStop stock does not fully account for the explosion in open interest in options,” Sosnick stated. “A suspicious person might wonder why ‘Roaring Kitty’ chose to return to social media today. Given my past experience in analyzing the periodic bouts of meme stock activity, consider me suspicious.”
Comparisons to Bed Bath & Beyond
Sosnick draws a parallel between the current situation and the trading activity in Bed Bath & Beyond (BBBY) stock in August 2022. At that time, Ryan Cohen, now the CEO of GameStop, bought shares in Bed Bath & Beyond, which led to a massive stock surge. However, the stock plummeted after Cohen sold his shares, and Bed Bath & Beyond eventually went bankrupt.
“I can’t shake the feeling that something similar is occurring today, except that a social media influencer is under no obligation to file insider activity with the SEC – he is not an insider,” Sosnick noted. “In both cases, nothing specific was said about the stocks. The SEC filings in BBBY were boilerplate, and the social media post literally had no words. So, it’s probably all legal, but someone played this beautifully.”
Current Market Status
Despite their recent peaks, both GameStop and AMC Entertainment stocks have fallen significantly. By Wednesday’s trading session, GameStop was down 45% and AMC had dropped 56% from their Tuesday highs.
Key Takeaways
- Unusual Trading Activity: GameStop saw a surge in deep out-of-the-money call option trading volumes just before a significant social media influence returned.
- Massive Stock Movements: GameStop’s stock surged by as much as 271%, making significant gains for those who purchased call options.
- Suspicious Timing: Market strategist Steve Sosnick suspects coordinated market behavior, drawing parallels to past trading activities in Bed Bath & Beyond.
- Current Status: Despite the surge, both GameStop and AMC Entertainment stocks have seen substantial declines from their peaks.
Conclusion
The recent explosions in meme stocks like GameStop and AMC have once again highlighted the volatile and unpredictable nature of these investments. While the sudden surge and subsequent decline in stock prices can be attributed to various factors, the unusual trading activities observed by Steve Sosnick suggest that there may be more at play than meets the eye. Investors should remain cautious and consider the potential risks involved in trading highly volatile stocks, especially when influenced by social media and speculative behaviors.
