Meme Stock Hangover: One Year After GameStop, Traders Face Darker Markets

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NEW YORK, Jan 28 (Reuters) – The mood has changed dramatically a year since a dramatic rally in shares of GameStop (GME.N) captivated Wall Street, kicking off a craze for so-called meme stocks and putting spotlighting retail investors as a force to be reckoned with in the markets.

GameStop shares have fallen from their peak, although they are well above the levels hit before the meme stock craze. Other stocks popular with retail investors, including AMC Entertainment Holdings (AMC.N), followed a similar path.

It’s not just the actions of memes that have lost their luster. Retail investors and professional fund managers now face a hawkish Federal Reserve, with expectations of monetary policy tightening hitting assets that have soared over the past two years and sparking volatility in markets. wider.

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Despite steep declines, several meme stocks are much higher than in 2021. Others are not so lucky.

BOOM AND BUST

Despite steep declines from their 2021 highs, several of the stocks caught in the meme stock trading frenzy are trading higher than they were at the start of 2021. AMC and GameStop remain up around 600% and 400%, respectively, since their December 31 2020 closing levels. Some, like BlackBerry (BB.TO), are showing a more modest gain of 14%.

Others don’t fare so well. Clover Health (CLOV.O), for example, which at one point in 2021 was up 72% for the year, is now trading 86% below its starting 2021 level.

Reuters Charts

SAME STOCK MAYHEM

In many cases, those who got to the same stock early and quickly took profits were rewarded, while latecomers were punished. Most of the stocks swept away by the 2021 trading frenzy are now between 70% and 95% below their recent highs.

Reuters Charts

OPTIONS

Options have been a popular tool for investors looking to play the rally and their extensive use has helped exacerbate the swings in some stocks.

The growth of commission-free options trading on platforms such as RobinHood and Webull has increased their appeal to individual investors.

One-time stock options have been particularly popular. Trading in these contracts on individual stocks reached an all-time high, at one point accounting for up to 70% of the overall options market volume.

The overall market share of individual stock options has fallen to around 60%, but remains above pre-2021 levels, suggesting that interest in options among retail investors remains robust.

While short-term interest in some meme stocks has plunged, more generally, investor appetite for short stocks remains strong.

SHORT WORK

A year ago, retail investors rallied to squeeze hedge funds that had bet against shares of GameStop and other companies, bruising institutional players such as Melvin Capital in the process.

But while outbreaks at GameStop and other meme stocks have made some bears nervous, the practice of shorting shares — or selling borrowed shares in hopes of buying them back for a cheaper price — remains. a popular strategy in the markets.

“Short interest in some stocks has quickly waned as short sellers exit their positions to ensure they aren’t caught off guard at the next GameStop event,” said co-founder Peter Hillerberg. of the financial analysis company Ortex.

“However…this does not appear to have had a significant effect as overall short interest on all US-listed stocks is currently 30% higher than it was a year ago, demonstrating that the willingness to sell short is still high,” he said.

Reddit’s WallStreetBets, the online forum where individual investors urged each other to challenge hedge funds and coordinated their stock purchases, saw membership rise, though engagement dwindled

WALLSTREETBETS

Reddit’s WallStreetBets, the forum where individual investors have urged each other to challenge hedge funds and coordinate their stock purchases, has seen its membership swell in the wake of last year’s stock market drama, though engagement remains well below early 2021 highs.

The forum has around 11.5 million subscribers, down from 1.7 million in December 2020, while daily posts have fallen to less than 1,000 from a peak of around 64,000 a year ago.

This does not mean that retail investors have pulled out of the market, even though volatility has driven asset prices higher.

Retail investors bought a net $1.66 billion in stocks on Wednesday when a hawkish U.S. Federal Reserve result sent markets swinging wildly, Vanda data showed. It was the highest figure since a net purchase of $2.2 billion on Nov. 30.

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Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili, Alexandra Hudson

Our standards: The Thomson Reuters Trust Principles.

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