GameStop Corp. shares skyrocketed for a second day Thursday as momentum surrounding the stock continued to build and derivatives activity heated up.
Shares of the videogame retailer surged 77% to $162 after more than doubling in the final minutes of Wednesday’s trading session. The gains stand in sharp contrast to the rest of the market: Major stock indexes tumbled Thursday, with the S&P 500 losing 1.9% in afternoon trading as Treasury yields rose.
This week’s rally in GameStop is reminiscent of last month’s blockbuster gains that were fueled by individual investors who touted the stock on Reddit’s WallStreetBets forum and other social media platforms. The stock climbed as high as $483 in intraday trading in late January before falling back to around $40 last week.
The latest surge mystified many on Wall Street who were scrambling to identify a catalyst for the sudden moves. Analysts, traders and market observers said the run-up appeared to be the result of renewed interest from investors that was likely exacerbated by activity in the options market.
Bullish call options tied to GameStop shares have been actively traded. The options activity heated up late Wednesday as the shares jumped, with roughly 60% of all activity taking place in the last 90 minutes of the trading session. GameStop finished the day up 104% at $91.71, with options activity in the stock hitting the highest level in two weeks.
Short-dated options contracts closer to where the shares were trading at the time, pegged to $40, $50 and $60 strike prices, were among the most popular. Such short-dated contracts are among the most sensitive to changes in prices, and hedging activity tied to the bets can exacerbate moves in the underlying stock price.
“It only took a little fuel to cause the stock to rapidly accelerate,” said Brent Kochuba, founder of data firm SpotGamma, which tracks derivatives positioning.
Other “meme” stocks—ones that are popular on Reddit’s WallStreetBets forum—also jumped. AMC Entertainment Holdings Inc. climbed 10%, after finishing Wednesday 18% higher. Headphone-maker
surged about 55%, adding to its 55% rally Wednesday.
Both stocks, and several others, saw their share prices rapidly rise in January during GameStop’s meteoric ascent. They have fallen back to earth in the weeks since.
Demand for answers as to why the stocks were rising, and so quickly, seemed to overwhelm the WallStreetBets forum, which began to struggle to load around the close of the trading day on Wednesday.
Since GameStop’s epic rise in late January, some individual investors have remained bullish on the stock and were re-energized when
the trader on Reddit known as DeepF—ingValue, disclosed that he had doubled down on the shares. On Friday afternoon, Mr. Gill posted a screenshot to Reddit showing that he had purchased an additional 50,000 shares of the stock. Following the news, the stock jumped 13% Monday.
Several individual investors and online Reddit users pointed to figures on the bearish bets outstanding on the stock. Though there hasn’t been a notable increase in short bets, borrowing costs for new loans did tick up recently, said Sam Pierson, director of securities finance at IHS Markit.
Meanwhile, short interest in the stock has substantially diminished. As of Feb. 12, short interest in GameStop stood at roughly 30% of the stock’s free float, representing the lowest short interest in the company since the end of December 2018, according to Dow Jones Market Data. That compares with well over 100% at the start of 2021.
“I’m not seeing that it was short-covering that drove it,” said Ihor Dusaniwsky, head of predictive analytics at financial analytics company S3 Partners.
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