A screen displays GameStop’s logo and business information on the floor of the New York Stock Exchange (NYSE) on March 29, 2022.
Brendan McDermid | Reuters
Shares of two meme stocks surged on Thursday, adding an unexpected wrinkle to a stock market that has tumbled in choppy trading for more than a month.
GameStop jumped over 20% and was shut down several times for volatility. The title of the AMC Entertainment cinema chain jumped 18%.
GameStop and AMC turned heads early last year when a group of retail investors coordinated trades on online chat rooms to create massive cuts in these stocks widely hated by hedge funds and investors. other actors. The meteoric rallies have inflicted tremendous pain on many hedge funds and other short sellers involved in these speculative names.
Since then, stocks have retreated from their peak prices and short sellers have started to position themselves again. According to FactSet, AMC has a short interest of 19.5%, while GameStop sits at 21.4%. Short interest is a measure of the portion of a company’s available stock, or free float, that is sold short.
These large bets against the company can sometimes result in dramatic one-day moves in a stock as hedge funds decide to close their short positions when a stock rises, creating increased buying pressure. This process is known as short compression.
Even with Thursday’s big moves, shares remain well below their first-half 2021 highs. GameStop, which hit $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 around $12 a share on Thursday.
Because company market caps have fallen so much, it is easier for a few trading shops, or even a large fund, to force another short squeeze.
In 2021, AMC and GameStop took advantage of their temporarily high stock prices to sell additional shares and raise capital. AMC CEO Adam Aron made a major push to embrace retail investors who participated in the rally, answering questions from small-dollar traders on earnings calls and introducing shareholder benefits at physical theaters .
AMC used the money it raised in part to buy other theaters across the country. However, the company also bought a stake in a small gold mining company earlier this year that has a shaky financial history.
– CNBC’s Yun Li contributed to this report
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