Quiver Quantitative - The revival of retail investor enthusiasm is driving a notable rally in GameStop Corp . (NYSE:GME) shares, which surged nearly 20% to a two-month high in recent trading sessions. This resurgence in interest, particularly ahead of the company's upcoming quarterly results, highlights a renewed vigor for risk among retail traders. GameStop's stock, up almost 36% in just two sessions, closed at $15.31, reflecting this marked shift in investor sentiment. This trend is also evident in other retail favorites like AMC Entertainment (NYSE:AMC) and Cathie Wood's ARK Innovation ETF (ARKK), which have seen increases of approximately 3.5% and 0.5%, respectively.
This rebound in meme stocks, such as GameStop, coincides with broader market optimism. The S&P 500 (SPY) is approaching its highest level for 2023, fueled by hopes that U.S. interest rate hikes may have reached their zenith. Such optimism is reigniting speculative trading that has lagged throughout the year. GameStop's forthcoming third-quarter results, expected on Dec. 6, are predicted to show a significant reduction in net loss, drawing even more attention from bullish investors. Data from Vanda (NASDAQ:VNDA) Research indicates that individual investors purchased $1.92 million in GameStop shares on a net basis on Tuesday, the highest since early August.
Behind this surge is a noticeable uptick in options activity, particularly in call options, which are typically utilized to wager on rising share prices. Around 230,000 GameStop options contracts were traded, with the majority being call options. This kind of trading can sometimes further propel a stock's price, especially when large volumes of out-of-the-money call options are purchased. According to Brent Kochuba, founder of options data platform Spotgamma, continued buying of these calls could maintain upward pressure on GameStop's stock price.
However, caution remains advisable as previous speculative rallies have been short-lived. Despite the recent gains, GameStop's shares are still down 27% for the year through Tuesday's close, while AMC's shares have dropped by 80% in the same period. This volatility underscores the unpredictable nature of meme stock movements and the risk inherent in trading based on speculative sentiment.
This article was originally published on Quiver Quantitative