FX168 Financial News (North America) News This week, meme (meme) trading unexpectedly recovered, and traders who have shorted some of the most serious stocks are suffering book losses.
Goldman Sachs created an investment portfolio to go long on the most popular stocks for hedge funds, while also shorting 50 stocks, falling about 13% over the past two trading days, which is expected to be the worst two-day decline since the peak of the retail trading frenzy financial crisis in 2021.
Stocks that were once popular with retail investors, such as GameStop Corp. and AMC Entertainment Holdings Inc. rose sharply, highlighting this performance. These heavily shorted stocks expanded their gains on Tuesday after rising more than 70% on the previous trading day, leading the market.
According to S3 Partners LLC, this month's bearish bets on this currency pair lost more than $1 billion in market capitalization: GameStop bears lost $1.24 million in May, while AMC bears lost around $126 million.
(Source: Bloomberg)
Most of the losses suffered by short sellers due to meme stock surges occurred over the past two trading days.
Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners LLC, wrote in a Tuesday report: “Today's losses will cause many short sellers to lose control of their emotions and push them out of their positions.” He added that for companies that are bearish on AMC in particular, these losses “are turning their year-to-date and month-to-date profits to ashes.”
Shorting — a rapid rise in prices forces short sellers to buy back shares to make up positions, usually at a loss — may cause the share price to rise further and put further pressure on other bears. A spike in meme stocks may also cause gamma compression, which happens when rising prices spur traders to buy call options, forcing market makers to buy underlying stocks and push up share prices.
In Tuesday's trading, heavily shorted stocks continued to rise, and this enthusiasm spread beyond the most popular retail stocks. SunPower Corp. shares rose 92% to an intraday record, while shares of BlackBerry Ltd. and Virgin Galicate Holdings Inc. rose 24% and 36%, respectively. However, the former president's media company Trump Media & Technology Group Corp. (Trump Media & Technology Group Corp.) is a company that has recently become the darling of the retail industry. The stock price rose 6.9%, a moderate increase.
GameStop's stock price more than doubled when it opened, reaching its highest level since 2021, while AMC's increase was as high as 129%.
Volatile trades encourage more short sellers to step in meme names. Despite this, AMC and GameStop shares are still far below their 2021 peak, as are other companies with high bear interest.
“Meme trading is back,” Dusaniwsky said. “As share prices for stocks such as GME, AMC, and DJT soar, short sellers will fall on the precipice.”