Stick with me on today’s public service announcement…
It’s an important lesson that may save you $40,000 if you trade like “new-set-3059”.
I always say that “luck prefers the prepared trader,” but sometimes, there’s something besides luck at work this morning with GameStop (GME) stock.
This morning’s “surprise” return of MEME Leader “Roaring Kitty” is less of a surprise to some lucky traders out there.
News of the Kitty’s return sent shares of GME through the roof, more than doubling in the early minutes of trading. I was slapping my head saying “oh no, here we go again” when it struck me… look at the options activity.
Call me surprised (not) when seeing that someone bought a boat load of call options that expire this Friday, April 27, well before this morning’s announcement that Roaring Kitty was leaning back into the market.
I will just paint the rough numbers for you. One set of trades on April 27 amounted to around 14,000 contracts of the GameStop $40 calls that expire this Friday.
The calls traded for $0.21 per contract, equaling a $29,400 investment.
Those 14,000 $40 calls are worth $9,240,000 as I type this. My guess is that they were closed this morning at a higher price.
There were additional strikes that traded abnormal call volume that day, so the trade may have been part of a more elaborate strategy, but there’s one strategy that is clear… someone knew, and someone made a lot of money.
The scenario playing out in my head is as follows.
Keith Gill (Roaring Kitty) buys the calls, tweets the drawing - which made no mention of GameStop – then cashes out of the options and happily moves on knowing that a recent federal court cases in Texas found that pump and dumps are legal.
Regardless of the scenario painted in my head, there’s one thing you should do as an investor: Stay away from these stocks.
The MEME stock craze was just that, a craze. Stocks were pumped into the stratosphere by a rebellion group of traders taking their order every morning on a Reddit subreddit.
The problem is that the strategy of listening to this crowd is likely to result in following Ricky Bobby’s motto from Talladega Nights - “If you’re not first, you’re last.”
Just look at this post from the Wall Street Bets subreddit this afternoon.
That’s an $80,000 trade in the June $30 calls that is already showing a loss of $36,000 seven hours after their purchase.
YOLO can also mean “you only lose once,” which is what so many investors learned in 2022 as the Wall Street Bets Army learned “if you’re not first, you’re last.”
Use some common sense when watching the MEME stocks rebirth.
This morning’s tweet from Roaring Kitty increased Gamestop’s market cap by more than $2.5 billion dollars. That’s more than the company made from their operations in the last six months. If it’s too good to be real, then it really is.
Based off of today’s activity, the following stocks are matching the pattern of MEME trading that is more than likely going to result in another round of musical investing chairs where a lot of investors will be left standing after the YOLO Music stops.
Headphone company KOSS (KOSS) is trading 33% higher as the Reddit Army came back to life this morning. The company had some bullish interest last week that took the stock off of its lows ahead of this move.
Koss reported better-than-expected earnings results last week after a rough couple of quarters. The company has yet to come close to numbers posted in October 2022, just at the top of the MEME trading curve.
Trading under $5 with light volume, KOSS shares are susceptible to selling pressure, especially after this one-day windfall.
Tupperware (TUP) trades 40% higher this morning on the back of its largest trading volume since October 2023, when the company provided a bullish outlook on earnings.
One need look no further than the volume patterns of the stock to know that this is another “high” for the stock. Since 2022, similar volume spikes have been followed consistently by 40-50% declines in the stock.
These volume spikes are what I refer to as “Crescendo Volume” as the represent the short-term peak in the price of the stock before a buying vacuum leaves the stock in danger of the next selling spree.
This is where the list gets more interesting and has a fundamental backdrop.
Of the three companies, AMC Entertainment (AMC) has felt like the most viable. The consumer has been strong since the pandemic that shut AMC’s theaters down and the company has made a number of moves to capitalize on that strength. Despite that, the theater crowd just hasn’t returned in forces.
Over the last few weeks, we’ve seen a sampling of the blockbuster movie season’s offerings, and moviegoers haven’t been impressed.
AMC shares continue to struggle from a fundamental and technical perspective as earnings, revenue and the stock’s price are locked in a downtrend. Add to this the potential for a slump in consumer activity to hit the theaters and today’s 76% rally feels like nothing more than a dead-cat bounce.
The bottom line here is that the WALL STREET Bets Army and their leader, Roaring Kitty, may have just done more harm than good to a market that needed a return of the YOLO Investor like they need a hole in their brokerage account.
You’ve been warned.
