Other meme stocks including CMA (CMA), Bed bath and beyond (BBBY) and Beyond meat (BYND) also climbed higher on Thursday. AMC jumped nearly 10%, a much larger gain than rival movie stocks Cinemark (CNK) and IMAX (IMAX).
Bed Bath & Beyond increased by approximately 2%. Beyond Meat plunged 20% at the opening bell on weak results, but the plant-based food giant reversed course and was briefly higher. It ended the day down just 4%.
Most of these stocks, favorites of traders on Reddit and other social media platforms, pared early gains as the day progressed, and all have plunged overall this year along with the broader market. GameStop is still down around 40% in 2022 despite Thursday’s pop, while AMC is down nearly 60% in the same time frame.
AMC, in particular, has a fervent base of supporters, who often use Twitter hashtags like #AMCNEVERLEAVING and #AMCtothemoon to tout the stock. But some investors have bet against AMC due to fears the company has taken on too much risk lately.
The cinema chain now plans to sell AMC-branded popcorn outside of theaters. He also dabbled in cryptocurrencies and even invested in a precious metals mine.
A possible reason why AMC, GameStop and other meme stocks are rallying? They can be relieved by what is called a short squeeze.
Many short sellers – investors who borrow stocks and sell them back in hopes of buying them back at a lower price – are betting big against those same stocks.
It’s a very risky strategy, however. If a stock sold short rises above the price at which the short seller bought it, the investor could lose a lot of money.
As heavily shorted stocks rise, short sellers may be forced to quickly cover their positions by buying back the stock to avoid even greater losses. This short hedge can feed on itself, leading to “compression” that pushes the stock price higher and higher.
Investors in AMC and other meme stocks even have an acronym to describe this phenomenon: MOASS, which stands for Mother of All Short Squeezes.
Some would argue that short cuts are not a good reason for a stock to rise because they have little to do with a company’s fundamentals, such as sales and earnings.
But others note that individual investors should be able to fight off large institutional firms and hedge funds that can unfairly target a stock and sell it short.
“Fair markets are free markets”, Ryan Cohen, the Soft (CHWY)
co-founder today president of GameStop and its first shareholder, tweeted
Thursday. Cohen’s RC Ventures also has a significant stake in Bed Bath & Beyond.