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Recent gains on the stock market has helped bring 2021's "meme" stocks, like GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC) and Bed Bath & Beyond (NASDAQ:BBBY) back into favor. All three rose sharply on Aug. 8.
The meme stocks got their name from traders at Reddit's r/WallStreetBets creating cartoons or memes to push investors into buying them. Last year all the stocks had large short positions and some of those traders, using free trading site Robinhood (NASDAQ:HOOD), got big profits.
All the stocks fell after the craze. But GameStop and AMC still trade well above their pre-meme levels. GameStop stock remains a "10-bagger," up over 1,000% from its December 2020 price.
The New Meme Stocks
Short interest has been rising in all three stocks. GameStop had almost 20% of its shares held short recently. AMC had 18.6% of its stock held short. Bed, Bath & Beyond's short interest rose to 41% of its float after CEO Mark Tritton was let go. This brought back the Reddit crowd.
Ryan Cohen, the Chewy (NASDAQ:CHWY) co-founder who used the 2021 rally to become chairman of GameStop, bought 10% of BBBY in March, then signed an agreement giving him three board seats. After that agreement the stock lost half its value, but it has rallied since Tritton was let go.
GameStop recently created a marketplace for non-fungible tokens (or NFTs), digital property stored on a blockchain. AMC has begun issuing its own NFTs.
The boosting of NFTs by Cohen and AMC CEO Adam Aron may be helping lift both stocks.
What hasn't changed is the business' performance. GameStop revenue was just 8% ahead of 2021 in its most recent quarter. AMC is still at half its pre-pandemic revenue. BBBY suffered a huge loss in its most recent quarter.
What Happens Now
The trick in a speculative frenzy lies in selling, not buying. Many investors were burned in 2021 because they kept their shares after achieving a fat gain.
The way to win is to be ready to sell at a moment's notice and use options against your position to hedge your risk. Most retail investors don't know how to play that game, which leads to losses.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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