Amateur traders are piling in on meme stocks like GoPro, Krispy Kreme, and Wendy's. Analysts say the surges are being driven by a mix of social media buzz, short squeezes, and technical breakouts.

New York

A new wave of meme stock trading is underway, with retail investors driving up prices of companies that are not performing strongly on traditional business fundamentals. This activity is largely coordinated through online forums such as Wall Street Bets on Reddit, and is occurring alongside broader market highs.

Unlike the previous meme stock frenzy, current conditions include higher interest rates and economic uncertainty, yet speculative trading remains strong. Analysts note that while this euphoria is notable, it does not necessarily signal broader market instability. Strategies such as dispersion trades and put options are being discussed as ways to hedge against the volatility in meme stocks.

Meme stock fever heating up

What is the common denominator to the meme stock frenzy that we're seeing right now. Well it's that they're all terrible businesses that aren't trading on fundamentals and are all across Wall Street bets forums across Reddit that people are talking about. And it's an effort to get rich quick to capitalize on these really big swings in these companies. This is stretching into a second day today with all of these companies that you mentioned to go broke. Krispy Kreme Wendy's amateur traders piling in once again. This comes of course at a time of broader market euphoria with stocks trading at record high. So it's unsurprising that these animal spirits are kind of moving into more speculative quarters of the market. JP Morgan's trading desk this morning actually flags that its internal basket of meme stocks is up 7.9 percent month to date versus the S&P 500 which is up 1.7 percent. So really a testament to this euphoria that is once again back in markets. And if you look at Kohl's yesterday that was at the forefront of all of this. It has a it has a float of 38 percent. Sorry 48 percent rather. This is according to data from S3 partners meaning that these are you know bets against the company. By comparison GameStop has a float interest of 20 percent. So really short interest. Exactly. Yeah. Is this exactly like what we were seeing in 2021. I don't remember that far back. I'm sure you've done the reporting. So what's the difference between now and then. So the enthusiasm is really similar but the backdrop backdrop in markets is really different. Obviously at the time in 2021 traders were you know their finances were being propped up by stimulus checks. We were at zero interest rates. There was so much enthusiasm in markets and this time around there's a lot of uncertainty around the macroeconomic outlook. Interest rates are elevated with the Fed saying they won't cut anytime soon. We have trade uncertainty. So less favorable backdrop for this risk taking. But also interestingly more investment products that cater to this type of enthusiasm. Wall Street's casino has so many options. You have levered ETFs. You have all these companies. You have so many crypto investment options. I have to say it's wild. I think back to 2021 and what an interesting time it was. But when we would have these conversations it was all the conversation was very much. This is a product of Zerb. This is because we have interest rates at zero that once we raise rates up that'll sort of drain all of this out of the market. That obviously has not happened yet. Yeah. The president is screaming for another three percentage points to be cut. I know. And I guess that's close. It's NERP. Well that's the thing. You have to wonder will that just if we're having this sort of activity when we're at four and a half percent or close to it what happens if we go back down to 1 percent. I shudder to think. But let's talk about how people normal people not retail traders who are sort of jockeying around on Wall Street bets. How do you position around some of the mechanics of what's going on with the meme stocks. So Barkley is head of derivatives. Stefano Pasquale has actually been flagging this frothiness for the entire summer pretty much. And he says that a way to hedge this euphoria is to use a popular hedge fund strategy called a dispersion trade where you bet on single stock options and also contracts on broader indexes like the S&P 500. Basically you're betting that a basket of meme stocks will be more volatile than the S&P 500. But also alternatively if you want to take a more directional bet you can just buy puts on these meme stocks. I don't know if that will pay off quite well given how they're doing. But he also flags one important point is that even though we are seeing this euphoria in these speculative names it's not necessarily an indication of something nefarious for the broader market.

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