What Happened Before the Crazy Surge of GameStop and AMC?
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Last week, the US stock market and cryptocurrency market experienced a crazy surge of MEME, reminiscent of the 2021 'retail investors vs. Wall Street' phenomenon.
This new wave of excitement was sparked by the return of the leader from the 2021 frenzy! Roaring Kitty, named Keith Gill, hinted at his comeback on 13th May (last Monday) with a post on his X platform, which had been inactive for three years. GameStop ($GME) saw an intraday surge of over 100%, triggering multiple trading halts. The rally continued into the next trading day (14th May).
GameStop's wild trading activity directly boosted the meme stock sector. AMC Theatres ($AMC) closed up nearly 80% last Monday, with an intraday peak of almost 100%. Last Tuesday, $AMC opened over 100% higher but then declined, closing with a gain of nearly 32%.
Why is Roaring Kitty so influential?
The title "Leader of the Retail Investor Revolution" sounds very intriguing at first. However, an article titled "Who is Roaring Kitty and why is he causing a GameStop stock surge?" gives a more detailed account of Roaring Kitty's journey:
He initially worked at a financial company, but his real rise to fame came through social media.
From 2014 to 2015, he joined Twitter and YouTube, showcasing his trades and market analysis. In 2019, he joined Reddit under the username DFV (DeepFuckingValue). That same year, he started buying $GME stock, believing it was significantly undervalued.
Reportedly, Roaring Kitty initially bought around $53,000 worth of $GME stock at about $5 per share. He then shared his position on Reddit's WallstreetBets (WSB) board, explaining his investment strategy and urging others to join in.
In January 2021, spurred by some positive developments, more and more retail investors started buying $GME, causing the stock to surge by up to 50% in a single day and nearly 700% in one month.
As a result, the short-selling hedge fund Melvin Capital ultimately closed its short positions and admitted defeat.
Options Market Signals Before the Frenzy?
At the end of last month, some $GME stock options showed unusual activity: call options expiring on 17 May with a strike price of $25 saw a large number of ask-side trades on 25 April. On 26 April, even more buy orders flowed in.
More detailed trading data can be seen in the chart below: on 25 April, the open interest for these options increased by 2,374 contracts, with an average price of about $0.10. On 26 April, more buy orders flowed in, and open interest increased by 10,128 contracts. Judging by the average price, the buy orders made on 25 April might have already seen a 100% profit.
Looking at the 'OI DIFF' changes, there was a consistent net inflow of funds before 10 May , with the contracts from the end of April remaining open.
Two weeks later, on 13 May, Roaring Kitty tweeted, and $GME's stock price skyrocketed, sparking the meme frenzy mentioned at the beginning of this article. $GME's price peaked at $64.83. The call options expiring on May 17 with a strike price of $25 saw their average price soar to $24.84, compared to the initial $0.10—an incredible profit!
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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Before making any financial investment decisions, please ensure you thoroughly understand all aspects of the information and conduct your own research.
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