The Meme Stock Price Frenzy: A Guide to Trading and Investing

Meme stocks have been making headlines in recent years, with their prices skyrocketing and plummeting in a matter of days.

These stocks are often driven by social media hype and online communities, rather than traditional financial analysis.

A key characteristic of meme stocks is their high volatility, with price swings of 10% or more in a single day.

This volatility can be both an opportunity and a risk for traders and investors.

Meme stocks often have a strong online presence, with thousands of users discussing and trading them on social media platforms.

For example, GameStop's stock price surged by 1,700% in January 2021, making it one of the most traded meme stocks at the time.

The era of meme trading was facilitated by technological developments and new business models that allowed for greater retail investing.

Meme stock surges, like the one at GameStop in January 2021, have been taking place episodically in recent years.

Hobbyists stuck at home, often using stimulus checks, were initially attributed to meme surges, with a goal of toppling Wall Street trading houses they felt had rigged the system against them.

However, these firms continued to see elevated stock prices into 2022, suggesting that meme trading could be a longer-lasting market phenomenon.

Meme trading has become a significant market phenomenon, with its consequences and implications still being studied and understood.

GameStop and Other Meme Stocks have been at the forefront of the meme stock phenomenon. The original meme stock, GameStop, is one of the world's largest video game retailers, selling video games, gaming consoles, accessories, and collectible merchandise.

GameStop's stock was heavily shorted back in early 2021, creating the conditions for a short squeeze when retail investors piled into the stock. This particular squeeze was perhaps a unique event.

The stock of GameStop has been one of the most popular meme stocks, with mass purchases of the stock leading to a short squeeze in early 2021. The stock of entertainment company AMC is also cited as a prominent example.

Other examples of popular meme stocks include Bed, Bath & Beyond, National Beverage, and Koss. These stocks often trade at prices that are above their estimated value – as based on fundamental analysis – and are known for being extremely speculative and volatile.

Here are some of the top trending shares on Reddit, cross-referenced through YOLO Stocks, Meme Tracker, and Quiver:

GameStop and other meme stocks have been a boon to investors, day traders, and brokerage platforms. Companies have also capitalized on the meme stock phenomenon, raising billions of dollars through secondary offerings.

AMC Theaters CEO Adam Aron took advantage of the elevated valuation and engaged in a series of secondary offerings in 2021, raising more than $1.5 billion. GameStop followed suit in 2021, raising nearly $1.7 billion via a secondary offering of 8.5 million additional shares at an average price of more than $200 per share.

Bed Bath & Beyond announced intentions to sell 12 million shares in a secondary offering in 2022, but the stock fell steeply following the company's announcement.

Here are some notable secondary offerings made by meme stocks:

These secondary offerings demonstrate how companies can take advantage of the meme stock phenomenon to raise capital.

"Roaring Kitty" Ignites Meme Frenzy with a cryptic post on Twitter/X.

The post featured a mocked-up Time Magazine cover with a blank computer screen and keyboard on December 5.

AMC shares soared after the post, but fell 9% the next day.

The company's stock price dropped after announcing an agreement to sell 50 million shares on December 6.

GameStop and AMC are known for their volatile movements associated with meme stocks.

Meme stocks are a type of stock that gains popularity among retail investors through social media, particularly on platforms like Reddit's r/wallstreetbets.

These stocks often trade at prices above their estimated value, making them extremely speculative and volatile. The U.S. Securities and Exchange Commission has called this phenomenon a "meme stock phenomenon".

The interest in meme stocks started in 2020, and the stock of American video game retailer GameStop has been one of the most popular meme stocks, with mass purchases leading to a short squeeze in early 2021.

Meme stocks can become overvalued relative to fundamental technical analysis, and their prices can be influenced by online communities and social media platforms.

Some hedge funds have big losses due to the meme stocks phenomenon, but others have joined the market rally to trade profitably.

Meme stocks often have heavier discourse and analysis in discussion threads on websites like Reddit and posts to followers on platforms like X (formerly Twitter) and Facebook.

The most famous example of a meme stock came in early 2021 when a short squeeze coordinated by users on the Reddit sub-forum r/wallstreetbets caused GameStop's share price to skyrocket.

Here's a list of some common terms used by meme stock communities:

Meme stocks are shares of companies around which online communities have formed to promote and build narratives. These stocks carry an added risk of higher-than-normal volatility that could be driven by viral posts on various social media platforms.

Buying meme stocks without vetting is risky, as it's a poor strategy to buy stocks just because they are rallying. Reading their charts can show the risks involved, and it's better to bring a time-tested method for stock picking and search for buy points in proper bases.

Meme stocks do not follow traditional investment wisdom, which says you should buy stocks based on earnings growth and performance. They are extremely speculative, and their meteoric rises and heart-stopping crashes typically depend on social media hype and online interest.

Meme trading has been on the rise in recent years, with GameStop's surge in January 2021 being a prominent example.

The New York Times noted that meme surges were initially attributed to "hobbyists stuck at home spending stimulus checks, crusading to topple Wall Street trading houses they felt had rigged the financial system against them." This phenomenon has continued into 2022, with firms seeing elevated stock prices.

Meme trading may be here to stay, as The New York Times concluded that this could be a longer-lasting market phenomenon.

An at-the-market offering allows a company to sell its shares directly to investors on the open market at any time, without the need for a separate offering period.

This type of offering is often used by companies that want to raise capital quickly and efficiently.

Companies can sell up to 25% of their outstanding shares in any 12-month period, or up to 30% with shareholder approval.

The offering can be used to raise capital for various purposes, such as paying off debt or funding new projects.

The company can sell its shares at the prevailing market price, which is the current price of the shares on the open market.

The at-the-market offering is often less costly and less complex than traditional offerings, making it an attractive option for companies.

Investors can buy and sell shares on the open market, just like with any other publicly traded company.

The offering is typically facilitated by a broker-dealer, who acts as an intermediary between the company and the investor.

The company must disclose certain information to the public, such as the number of shares being sold and the total amount of capital being raised.

The at-the-market offering can be a good option for companies that want to raise capital quickly and efficiently, but it's essential to consider the potential risks and costs involved.

Short selling is a high-risk strategy that involves selling shares you don't own, with the expectation of buying them back later at a lower price. This is a bet that prices will go down.

Short interest in meme stocks is often high, making it a challenging strategy to execute. A high short-interest ratio indicates that a large proportion of the company's outstanding shares have been sold short.

Short selling involves borrowing shares from someone who is long the stock, and as more shares are sold short, fewer shares are left available to borrow. This can make it difficult to find shares to sell short.

A short squeeze occurs when the price of the shorted stock rises, forcing short sellers to cover their positions by buying back the shares at a higher price. This can accelerate a stock's price increases as more short sellers are forced to bail out.

To manage risk when trading with leverage, it's essential to keep a close eye on your trade size and margin requirements. This can help you avoid significant losses if the market moves against you.

Here's a summary of the risks associated with short selling:

Buying stocks just because they're rallying is a poor strategy. It's better to bring a time-tested method for stock picking and search for buy points in proper bases.

Reading charts can show the risks involved. Shares of AMC have been trading along the 50-day moving average for weeks now, with the stock basically going sideways.

The meme stock has IBD Ratings that are well below ideal levels. The Composite Rating is just 20. This suggests that the stock's performance is not strong.

Panning out for a longer view, IBD MarketSurge's monthly chart highlights the wild swings that are typical of meme stocks. From a split-adjusted closing price of 11.49 on Dec. 31, 2020, AMC shares hit an all-time high 393.65 on June 2, 2021. That's a gain of 3,326%. But the stock has crashed since then.

Investor's Business Daily recommends stock picks based on strong fundamental performance and chart action while also paying attention to the market and managing risk.

Here are some key risks to consider when buying meme stocks:

Meme stocks have been known to experience extreme volatility, with some stocks skyrocketing in a single day, only to crash and trade for much lower prices soon after. Top Financial, for instance, surged 428% in one day, but quickly fell to under 10 by May 2023.

The stock market has also seen a shift in how investors make decisions, with many turning to social media to inform their investment choices. Forums like r/wallstreetbets now boast 16 million members, with users sharing and discussing information on various platforms.

The quality of information shared on social media can be questionable, but it's also provided a platform for investors to connect and share ideas in real-time, as seen with the return of Keith Gill, the man behind the original GameStop movement.

Financial markets can be incredibly volatile, and it's not uncommon to see stocks soar and then plummet in a short amount of time. This is exactly what happened with Top Financial, which skyrocketed 428% in one day before crashing back down.

The stock's wild ride began in April 2023, when it jumped from 48.60 to 256.44. It then crashed and traded for under 10 by May 2023. The stock's volatility is a perfect example of meme stock behavior.

Meme stocks are known for their extreme price swings, and GameStop Cl A is another example of this. Its Relative Strength Rating has jumped to 91, indicating that it's showing renewed technical strength.

GameStop Cl A's price performance has been impressive, with its Relative Strength Rating upgrading to 92 and then 93. This suggests that the stock is gaining momentum and could be a good buy.

However, it's worth noting that meme stocks can be extremely volatile and may not be suitable for all investors. The stock's price can drop just as quickly as it rises, and there's always a risk of significant losses.

Here are some key statistics on the meme stocks mentioned:

The future of meme stocks is uncertain, but it's clear that they continue to attract attention from retail investors. With the return of Keith Gill, the man behind the original GameStop movement, it's likely that meme stocks will remain a hot topic in the financial markets.

The S&P 500 is the most popular index in the world, tracking the 500 largest companies listed in the United States by market capitalisation.

It's not a stock, but rather a benchmark of the US stock market's performance. Investing in the index has always been a popular choice.

The S&P 500 is often lumped in with meme stocks, but it's a more stable option. This is because significant volatility among meme stocks can spark some volatility in the index.

Investing in the S&P 500 can be a good choice for those looking for ease of access to the US stock market.

The MEME ETF, launched in December 2021, tracks 25 stocks based on social media popularity and market sentiment. It's rebalanced twice a month to ensure the portfolio remains relevant.

Eligible securities are given a social media activity score, which considers the number of times a firm or its ticker is mentioned on specific platforms over a 14-day period. This score is also factored with short interest.

The MEME ETF includes meme stocks like Tesla and NVIDIA, which have also been featured in single stock ETFs. These ETFs provide leveraged long or short positions on a single stock, but only a small number have been approved for trading so far.

Carvana is an online-only retailer that buys and sells used cars, allowing buyers to complete a sale from home rather than visiting a traditional garage.

They offer financing to buyers and are well known for their car vending machines – multi-story towers where you pick up your new car after buying it online.

Despite huge volatility, Q1 2024 saw Carvana generate record net income of $49 million.

Carvana's record adjusted EBITDA of $235 million and record adjusted EBITDA Margin of 7.7% were higher than all other US publicly traded auto retailers.

Their financial performance is a testament to their innovative business model and ability to adapt to changing market conditions.

Carvana's success has likely been fueled by its ability to offer a unique and convenient shopping experience to customers.

Tesla is the original electric vehicle (EV) trailblazer. Its stock has been a wild ride, worth more than $400 three years ago and now sitting at less than $200.

The company has seen a significant increase in value over the past five years, with its stock up more than 1,100%. This is a testament to the growing demand for electric vehicles.

Tesla's recent struggles, including job cuts and production falls, have weakened its profit. However, the company has announced it will be releasing new models sooner than expected, which could boost its bottom line.

There's a meme stock-focused ETF called MEME, launched by Roundhill Investments in December 2021, with a ticker symbol of MEME.

This ETF features an equal-weighted portfolio of 25 stocks based on social media popularity and market sentiment.

The top 25 firms with the highest social media activity or "meme" score are included in the portfolio, which is re-examined and rebalanced twice a month.

Single stock ETFs have also been introduced, offering leveraged long or short positions on a single stock, including some meme stocks like Tesla and NVIDIA.

These single stock ETFs have only recently been approved for trading, but they give investors more options for accessing specific stocks.

Trading and investing in meme stocks can be a thrilling experience, but it's essential to understand the basics before diving in. Meme stocks are actual stocks listed on exchanges and available for trade, but their price performance and appeal often have little to do with their fundamentals.

To trade meme stocks, you'll need to research the market and decide which stock you want to take a position on. Then, open a CFD account to trade shares with derivatives. This enables you to take advantage of rising and falling markets by going long or short.

Trading meme stocks involves risk, and it's crucial to manage it at all times. You can trade with leverage, where your trade size is larger than your initial margin, but this also means you could gain or lose money faster than expected.

Meme stocks can be volatile, creating huge trading opportunities for retail investors. If timed right, there's the potential to generate a significant profit in a short time-period.

Here are the basic steps to trade meme stocks:

Keep in mind that meme stocks involve high risk, and it's possible to lose money faster than expected.