Shares of two meme stocks surged on Thursday, adding an unexpected wrinkle for a stock market that has been dropping in choppy trading for more than a month.
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 pains 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 percent, while GameStop sits at 21.4 percent.
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 $90 and $100 per share on Thursday.
AMC, which hit an intraday of $72.62 last June, was at around $12 per share on Thursday.
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 bought a stake in a small gold mining company earlier this year that has a shaky financial history.
Yun Li, CNBC contributed.