Social media speculators have recently turned several stocks into meme stocks.
These so-called
"DORK" stocks are: Krispy Kreme (D), OpenDoor (O), Rocket Cos. (R) and Kohl’s (K).
Meme crazes occur during periods when investors exhibit great market enthusiasm.
The VIX fell below 15 on Thursday—its lowest in five months.
This is a dramatic decrease from early April when it topped 60.
"What comes next? Goldman’s research says exuberant times can get more extreme for a while.
Over a 35-year horizon, sharp rises in speculative trading have preceded above-average three-,
six- and 12-month returns for the S&P 500, after which the market has faltered.""The return of meme stocks might fit that timeline again,
but it’s a warning to edge closer to the exits before the music stops."https://marketsam.cmail20.com/t/d-e-sukhthd-duklntldl-r/
Comments
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Opening lines from Bill Fleckenstein’s commentary tonight:
”The tractor beam was at work towing stocks higher once again, with the Nasdaq up almost 0.5% and the S&P about half of that. There was no news to impact trading, and it continues to be the case that the passive bid and mechanical flows just keep grinding the market upward.”
From ”Mechanical Flows” - The Daily Rap for Friday July 25, 2025
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dYahoo Finance - “Return of Meme Stock Mania Has Traders on Alert for Market Froth”
Related - I spent a lot of time today looking at BAMBX which has fallen off a bit the past couple months. All I could figure out is that it must be the market neutral portion dragging the fund down. About a quarter of the (mostly income oriented) fund is held in a “market neutral” sleeve that shorts “low quality stocks” and goes long high quality ones. It’s supposed to be an intricate balancing act and provide stability. But it looks like the meme craze may have upset the wagon. - “The best laid plans of mice and men often go astray.”
FWIW - I’ve run comparisons to PONAX and CVSIX. Similar risk / return. BAMBX still holds a slight edge at 10 years, but lags shorter term.
The list of meme stocks is growing – KSS, DNUT, GPRO, OPEMN, GME, etc. They start rallying without any reason or rationale.
The term meme stock captures a lot of sophisticated trading strategies underneath. It’s a heavily shorted, low-liquidity stock that can be moved by options activity & social-media buzz that results in GAMMA-SQUEEZE, a special kind of short-squeeze.
First, stocks can be bought LONG or sold SHORT. Shorting requires borrowing a stock & then selling it. The short-seller hopes to buy it back later at a lower price. Losing an infinite amount in shorting if the stock rises instead is a tall-tale because the position or account will be liquidated after repeated unmet MARGIN calls. SHORT-SQUEEZE occurs when many short-sellers get into trouble due to rising margin requirements & their short positions may be liquidated involuntarily by their brokers.
Second, options are derivatives for underlying stocks, indexes or futures. DELTA is the change in the option price from $1 change in the price of the underlying security & has the range $0-1. Delta is 0 or low for deep-OTM (out-of-money) calls, 0.5 for ATM (at-the-money) calls & high or 1 for deep-ITM (in-the-money) calls.
Speculators often buy deep-OTM calls & these may be seen as lottery tickets; most expire worthless. Often, news leaks or insider trading are suspected when there are large or unusual deep-OTM call orders. As options dealers can lose a lot of money from unexpected news, they are aggressive in reporting any unusual options activity to regulators.
A highly profitable call may become deep-ITM & maybe ASSIGNED or the profits may just disappear in a volatile market. So, investors should take profit (& reduce risks) on deep-ITM calls & replace them with new OTM/ATM calls.
Options GAMMA is the rate of change of delta, or the 2nd derivative (or, curvature) of the option price wrt the price of underlying security. Gamma is the highest for ATM options (i.e. when delta is 0.5).
When you buy a call, the options dealer has to buy some underlying stock to hedge based on its “Greeks”. So, high options activity can move the underlying stocks.
Finally, to put it all together, the gamma-squeeze is when options speculators buy lots of ATM calls (i.e. with high-gamma) on heavily shorted, thin/illiquid meme stocks & simultaneously pump them in social-media or chat-rooms.
https://indoustribune.com/business/finance/ybb-personal-finance-august-2025-market-trends/