Roaring Kitty strikes again!
In a world of semi-rational stock movement, we are now pricing in a highly irrational trade element that, at the same time, is very rational in its behavior.
You may recall that in January of 2021, GameStop stock (GME) rallied in an incredible short squeeze that was attributed to “reddit trading” and many small traders all buying and holding on for dear life. It was expected to be a once in a lifetime if not once ever type of trading scenario, as the market hyped up positions where many large investors were betting on bankruptcy, highlighted by GameStop. Along came “Roaring Kitty”, a social media/reddit poster and relatively small trader by market standards that advocated for GME being a potentially valuable company, not the zero that was being bet on by large hedge funds. Long story short, the stock rallied from under $1/share (split adjusted) to over $120/share over the course of a couple of months. The trade made millions of dollars for some, and lost billions of dollars for others.
And now, “Roaring Kitty” has returned to reddit and is impacting the market once again, causing a major spike in GME:
As you can see here in the 6-month chart, there’s a massive spike. I included the 5-year chart to make sure it was clear what happened last time (and what happened after, as this will also be crucial for future trade setups depending on what happens this time).
Now that it’s happening again, how can I benefit? What stocks might have a similar type of move, but haven’t fully priced into the market yet? Will it be AMC? FFIE? Or something else? Let’s look at charts for FFIE just to see how crazy that potential might look if we want to get wild with an idea:
FFIE would seem to have the most upside given its prior high around $5,000/share (split adjusted), but that doesn’t mean it’s the best trade, particularly with the pricing of the options. It seems unlikely that this stock will be rebounding into the thousands of dollars per share, but I can never bet against the crowd, so for now, I’d rather not fight this potential tsunami. But is this the best trade?
Perhaps it’ll be some other stock that could generate one of those 100x returns this time instead of GME or FFIE? For me, I am looking back to a name that had large short interest in 2021, and while it’s less shorted today, it could still become a darling of the reddit stock trade, once again – PLUG Power:
FFIE would seem to have the most upside given its prior high around $5,000/share (split adjusted), but that doesn’t mean it’s the best trade, particularly with the pricing of the options. It seems unlikely that this stock will be rebounding into the thousands of dollars per share, but I can never bet against the crowd, so for now, I’d rather not fight this potential tsunami. But is this the best trade?
Perhaps it’ll be some other stock that could generate one of those 100x returns this time instead of GME or FFIE? For me, I am looking back to a name that had large short interest in 2021, and while it’s less shorted today, it could still become a darling of the reddit stock trade, once again – PLUG Power:
Again, I included both the 6-month and 5-year charts here so we could evaluate the potential for a move in the case that GME buyers go back to the same symbols that worked last time instead of focusing on names with the highest short interest today.
If PLUG wants to repeat that kind of move and even get into the $30 range instead of the prior high at $68/share, I can make an absolute killing on the stock, particularly if I incorporate options. But options aren’t particularly cheap today if we simply see a return to the behavior of the last few years, and that’s important to note when structuring a complex trade with a complex leveraged potential payout.
The good news with this type of trade is that I can exercise patience and look for other names that could have a similar type of payout this time and an interesting leveraged option trade. Perhaps it will be NYCB that was previously mentioned, or perhaps it’ll be one of the many biotech companies with high short interest. To see more of the names I’m looking at for this potential move, you’ll certainly want to sign up for my Outlier Watch List!
And as always, please go to http://optionhotline.com to review how I traditionally apply technical signals, volatility analysis, and probability analysis to my options trades. And if you have any questions, never hesitate to reach out.
Keith Harwood
Keith@optionhotline.com
Recent Comments