The return of Mimi Mania. GameStop and AMC Rise
Bed Bath & Beyond stock is up about 2%. Beyond Meat stock fell 20% at the opening bell after poor earnings results, but the plant-based food giant reversed course and was briefly higher. It ended the day down just 4%.
Many short sellers – investors who borrow shares and sell them in the hope of buying them back at a lower price – are betting big on these meme stocks.
It is a very risky strategy. If the short sale price is higher than the price the short seller bought, the investor may lose a lot of money.
With shorting stocks skyrocketing, short sellers may have to quickly cover their positions by buying back the shares to avoid further losses. This short coverage can feed on itself, creating a “pressure” that pushes the stock price higher and higher.
Investors in AMC and other meme stocks have an acronym to describe this phenomenon: MOASS, which stands for Mother of All Short Squeezes.
Some might argue that short squeezes are not a good reason for a stock to climb because it has nothing to do with the fundamentals of the company, such as sales and earnings.
But others note that individual investors should be able to battle large institutional firms and hedge funds that may unfairly target and short stocks.