Shares of two meme stocks surged Thursday, adding an unexpected wrinkle for a market that has been dropping in choppy trading for more than a month.
GameStop jumped more than 30% and was halted for volatility multiple times, before its gains shank to about 5%. The stock of theater chain AMC Entertainment rose 7%, down from a surge of more than 20% at one point.
GameStop and AMC turned heads early last year when a band of retail investors coordinated trades on online chatrooms to create massive short squeezes in these stocks widely hated by hedge funds and other players. The meteoric rallies inflicted huge pain for many hedge funds and other short sellers involved in these speculative names.
Since then, the stocks have retreated from their peak prices, and short sellers have started to build positions once again. According to FactSet, AMC has short interest of 19.5%, while GameStop sits at 21.4%. Short interest is a measure of what portion of a company’s available shares, or float, is sold short.
Those large bets against the company can sometimes lead to dramatic one-day moves in a stock, as hedge funds move to close out their short positions when a stock rises, thus creating more buying pressure. This process is known as a short squeeze.
Even with Thursday’s big moves, the stocks remain well below their heights from the first half of 2021. GameStop, which rose as high as $483 per share on an intraday basis last January, was trading between nearly $80 and around $110 per share on Thursday.
AMC, which hit an intraday high of $72.62 last June, was at around $12 per share on Thursday.
May 12, 202206:01
Because the market caps of the companies have fallen so much, it is easier for just a few trading shops, or even one large fund, to force a new short squeeze.
In 2021, both AMC and GameStop took advantage of their temporarily elevated share prices to sell additional stock and raise capital. AMC CEO Adam Aron has made a major effort to embrace the retail investors who participated in the rally, answering questions from small-dollar traders on earnings calls and introducing shareholder perks at the physical movie theaters.
AMC has used the cash it raised in part to buy up other theaters around the country. However, the company also purchased a stake in a small gold mining company earlier this year that has a shaky financial history.
— CNBC’s Yun Li contributed to this report.
Yun Li, CNBC contributed.