Meme stocks redux! Several stocks, many with high short-interest, traded huge option volumes Wednesday. High short interest was a characteristic some speculators used to identify opportunities in the meme stock craze of early 2021. During that period, stocks like GameStop (GME) and AMC Entertainment (AMC) experienced huge moves, and participants on Reddit’s WallStreetBets forum, like Roaring Kitty, became famous (or infamous). Betting on meme stocks can be exciting — the adrenaline rush of watching volatile price swings, the camaraderie of online forums and the prospect of quick profits can make it feel like entertainment more than investing. That’s probably a good perspective to have because the most recent meme stock craze, featuring stocks like Beyond Meat (BYND) , Krispy Kreme (DNUT) , and others, is a reminder that this kind of trading should only be done with money that you’re fully prepared to lose. Lack of fundamentals At its core, the meme stock phenomenon has little to do with fundamentals. Companies like BYND and DNUT have real businesses, but those businesses are losing money. Their valuations in these surges do not stem from improvements in earnings, revenue growth or realistic market share expectations. Prices are driven instead by online narratives — posts on Reddit, X (Twitter), or TikTok — where momentum, humor and social sentiment outweigh financial analysis. That is not to say, though, that there is no rationale. The aforementioned high “short interest” is in some cases the sole reason a stock may have been chosen. The logic is that when the number of shares sold short (by those betting against the share price) is high relative to the number of shares outstanding, the large institutional short interest will eventually be forced to “cover” their short positions if a retail buying frenzy drives the stock price higher, meaning they (the institutional shorts) will be compelled to buy back the shares. This, in turn, adds more fuel to the fire and can accelerate a price increase even further. Rather than retail traders trying to “tag along” with institutional traders, they instead bet against them — sometimes promoting a “David vs Goliath” narrative along the way, insisting that a large number of retail traders can overwhelm even large and well-capitalized institutions. Sometimes they’re right. The danger is that meme stocks tend to spike rapidly and collapse just as fast, as speculators race into and out of the stock market. It’s a strategy that depends on staying ahead of the crowd, buying before the frenzy takes place, and taking profits before everyone heads for the exits. In 2021, traders in GameStop and AMC saw once-in-a-lifetime gains evaporate within weeks as liquidity dried up and retail enthusiasm faded. The same dynamic has resurfaced in 2024–25 with smaller, thinly-traded stocks like BYND and DNUT, where a few viral posts or option trades move prices dramatically. DNUT (Krispy Kreme Inc.) traded 38 times its 20-day average options volume. BYND (Beyond Meat) traded more than 3.3 million contracts, ~9.4 times its average 20-day volume. Part of the reason for the explosion in options volume is that both of these stocks are under $5 per share, which generally makes the shares ineligible for trading on margin. Options provide leverage. The stocks may also be hard or impossible to borrow for those interested in making bearish bets. Again, options permit a bearish bet when access to stock to borrow to short is limited (it cannot be overstated how risky shorting a stock in a short-squeeze can be, by the way). The most active contract Wednesday in Beyond Meat was the Oct. 24 weekly 3 strike puts, with nearly 147,000 traded at an average price of ~0.415/contract. BYND would need to fall $1 per share, or almost 28% in the next two trading days, just for that trade to break even! The weekly 4 strike calls were also active. Approximately 104k contracts traded at an average price of 1.455/contract. In this case, the stock would need to rise to $5.455/share, or more than 52%, by the end of the week just to break even! At least one, but possibly both of those options, will be worthless by Friday 4 pm. People buy lottery tickets as entertainment. They bet on sports as entertainment and they gamble on table games in Las Vegas as entertainment. If you are trading options on these stocks as entertainment, with money you can afford to lose, enjoy the ride and good luck, but do so knowing that while long-term investors make money over time, most of those buying options speculating on the direction of these stocks at the enormously high premiums these options currently command will not. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. 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Meme stock trading is dominating the options market. Mike Khouw says beware the adrenaline rush
