Meme Stocks

Meme Stocks

Subject : Economics

Context :Meme stocks, what many believed was a pandemic-induced diversion, seems to be staying on as a trend. Beginning with AMC Entertainment, GameStop and Blackberry, the list of meme stocks keeps on growing.

Concept :

• The term ‘meme stocks’ refers to under-the-radar stocks listed in the US market, usually without fundamentals, that suddenly catch the fancy of individual investors or day traders because they’re the subject of social media attention.
• Meme stocks usually start to rise as retail investors gang up on forums such as Reddit to thwart big guys such as hedge funds with short (sell) positions and buy them just for the fun of it.
• But such stocks, once they get going, can acquire a momentum of their own that defies all known metrics of valuation.
• Such stocks have seen huge gains, sometimes 50-100 per cent in a day, after day traders, inspired by discussions on message boards such as Reddit, started buying them in a coordinated manner.
• This has caught out short sellers such as large hedge funds such as Melvin Capital and White Square Capital.
• Short sellers make losses when a stock price rises (they’ve sold the stock without owning it) and have to buy more stock to cover their positions. This propels prices even higher.