- There's something off about the recent explosion in meme stocks like GameStop, one market pro writes.
- Deep out-of-the-money call options saw an explosion in trading volume just before the return of "Roaring Kitty."
- "It's probably all legal, but someone played this beautifully," Interactive Brokers strategist Steve Sosnick said.
The recent explosion in meme stocks like GameStop and AMC Entertainment looks suspicious, according to one market expert.
Interactive Brokers market strategist Steve Sosnick highlighted in a recent note that GameStop saw a surge in deep out-of-the-money call option trading volume prior to the social media return of "Roaring Kitty."
"These options are normally active, but there were notable increases in the volumes and open interest of upside call options expiring this Friday over recent sessions," Sosnick said on Monday, the same day the meme-stock explosion began. "Something started brewing late last month."
Sosnick highlighted that the $20, $25, and $30 strike call options expiring this Friday saw a massive surge in trading volumes last week, with tens of thousands of options being purchased on May 10.
GameStop stock closed at $17.46 on Friday, meaning that the stock would need to soar 15%-72% by this Friday for the options to make money, otherwise they would expire worthless.
Shares of GameStop have since soared as much as 271%, hitting a high of nearly $65 on Tuesday. The stock is trading at about $35.72 as of Wednesday afternoon. That still puts those call options in the money, printing massive gains for anyone who purchased them last week.
The May 17 $30 call option on GameStop closed at $0.43 on May 9, and peaked at $31 on Monday, representing a massive two-day gain of more than 7,000%, according to data from Yahoo Finance.
Aside from the call options, GameStop stock has been gaining since late April, jumping about 60% from April 24 through March 10 despite no fundamental news on the company.
"But that uptrend doesn't fully explain why we saw such an explosion in open interest in options," Sosnick said.
"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," Sosnick said.
Sosnick compared the current runup in GameStop stock to the trading activity in Bed Bath & Beyond stock in August 2022, when current GameStop CEO Ryan Cohen purchased shares in the now-bankrupt retailer. The disclosure of Cohen's purchases drove a massive surge in Bed Bath & Beyond stock, only for the stock to crash soon after it was revealed that Cohen sold his stock into the rally. Bed Bath & Beyond has since gone bankrupt.
"I'm sorry, but I can't shake the feeling that something similar is occurring today, except that a social media darling is under no obligation to file insider activity with the SEC – he is not an insider. 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," Sosnick said.
Shares of GameStop and AMC Entertainment were both far below their Tuesday peaks, down by 45% and 56%, respectively, in Wednesday's trading session.