Meme Stock Bulls Take Back Control as Hedge Fund Battle Rages

After a wave of selling heading into the weekend, retail investors have wrestled back control of their favorite shorted stocks, including AMC Entertainment and GameStop. The stocks are off their highs of the day, and retail investors are convinced that something shady is going on.

Short sellers are swinging back after losing USD 2.2 billion from AMC’s rally last week. There are theories of traders pulling out all the stops — including the illegal practice of naked shorting, which is currently trending on Twitter.

Double-Digit Percentage Gains

Shares of AMC have galloped 16% today but still failed to cross the psychologically important USD 60 level, where the movie chain stock closed above on June 2 for the first time. While AMC might be off its peak, investors don’t have much to clamor about considering that the stock has skyrocketed more than 467% since early May.

Fellow WallStreetBets stock GameStop is tacking on close to 11% in today’s session. The stock has gained more than 1,400% year-to-date for a market cap of USD 19.4 billion. GameStop investors have proven to be a loyal bunch as it hasn’t always been easy to hold. But those who have stuck around continue to be rewarded with more potential runway for gains.

Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, revealed in a tweet that GMC and AMC each have a short squeeze risk score attached of 10 out of a possible 10.

Naked Short-Selling

Meanwhile, the WallStreetBets crowd has taken over Twitter, with #nakedshorting trending on the social media site. To be clear, unlike regular shorting, which is legal, naked selling is not legal. It has to do with selling shares that have not been issued yet. Nonetheless, it still happens in the market.

Naked shorting is how 140% of GameStop’s float can have short interest, as pointed out by Charles Payne on Fox Business. Christian, Smith & Jewell Law Firm Attorney Wes Christian said he blames the prime brokers that are custodying the assets as well as market makers for this behavior.

The meme stocks have captured the attention of regulators, who say that they are monitoring the market for any manipulation and that they are looking to “protect retail investors.”

In the interim, retail investors appear to have hedge fund traders on the defense. Interactive Brokers Chairman Thomas Peterffy has some advice for them: don’t short meme stocks or you’ll come out on the losing side of the bet. He said stocks such as AMC have the potential to reach “unimaginable highs” that can leave traders holding the bag.