Meme stock hangover: a year after GameStop, traders face gloomier markets

GameStop trading information is displayed on the Robinhood app where another screen shows the Robinhood logo in this January 29, 2021 photo illustration. REUTERS/Brendan McDermid/Illustration/File Photo

NEW YORK, Jan 28 (Reuters) – The mood has changed dramatically after a year of a stunning rebound in GameStop (GME.N) shares that has taken over Wall Street, unleashing a frenzy of so-called meme-stocks and spotlighting retail investors. A force to be reckoned with in the markets.

GameStop shares have fallen off their peak, although well above levels touched prior to the stock meme craze. Other stocks popular with retail investors, including AMC Entertainment Holdings (AMC.N), have followed a similar path.

It’s not just meme stocks that have lost their luster. Retail investors and professional money managers alike must now contend with a hawkish Fed, with expectations of monetary policy tightening hurting assets that have soared over the past two years and stirring volatility in the broader markets.

boom and bust

Despite sharp declines from the 2021 peaks, many stocks caught up in the meme-trading frenzy are trading higher than they were at the start of 2021. AMC and GameStop remained up about 600% and 400% respectively from December. 31, 2020 closing levels. Some, like BlackBerry (BB.TO), are showing a more modest 14% gain.

Others did not perform as well. For example, Clover Health (CLOV.O), which was up 72% in 2021 for the year, is now trading 86% below its start of 2021 level.

MEME STOCK MAYHEM

In many cases, those who arrived at the stock party early and were quick to turn a profit were rewarded, while late entrants were punished. Most stocks swept into a trading frenzy in 2021 now standing anywhere between 70% to 95% below their recent highs.

and options

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

Its appeal among retail investors has been heightened by the growth of commission-free options trading on platforms such as RobinHood and Webull.

Single stock options were especially popular. Trading in these contracts on individual stocks jumped to a record high, at one point making up as much as 70% of the total volume in the options markets.

The overall market share of individual stock options has fallen to about 60% but is still above pre-2021 levels, indicating that interest in options among individual investors remains strong.

short work

A year ago, retail investors rushed to pressure hedge funds that had bet against GameStop shares and other companies, hurting institutional players like Melvin Capital in the process.

But while spikes in GameStop and other meme stocks have made some bears choppy, the practice of shorting stocks — or selling borrowed shares in the hope of buying them back at a cheaper rate — remains a common strategy in the markets.

“Short interest in some stocks has dropped rapidly as short sellers are exiting short positions to ensure they don’t get caught in the next GameStop event,” said Peter Hellerberg, co-founder of financial analytics firm Ortex.

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

Wall Street Beats

Reddit’s WallStreetBets, the forum where individual investors 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 meme drama, although participation is still well below the peaks of early 2021. .

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

This does not mean that retail investors have withdrawn from the market, even as volatility affects asset prices.

Data from Vanda showed retail investors bought a net $1.66 billion in shares on Wednesday, when the US Federal Reserve’s hawkish result sent markets into heavy volatility. This is the highest number since a net purchase of $2.2 billion on November 30.

(Narrated by Saqib Iqbal Ahmad). Editing by Ira Yosipashvili, Alexandra Hudson

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