GameStop Inc. (GME) - Get Report shares resumed their mystifying surge Thursday, extending yesterday's late-afternoon rally that more than doubled the money-losing retailer's share price and left Wall Street with a sense of wary déjà vu.
GameStop's Wednesday surge only really began in the final fifty minutes of trading - and several hours after news of the pending resignation of chief financial officer Jim Bell, who will leave the company on March 26.
However, the stock's meteoric gains -- from around $53 to a closing bell price of $91.71 -- left some analysts wondering if and how a group of traders were able to coordinate in order to elevate the share price.
TheStreet's founder, Jim Cramer, argues in his RealMoney.com column that the moves could be linked to action in the options markets.
"In order to get a stock to move you need to get people who are making orderly markets, the options markets, to be caught off guard," Cramer said. "They have to be able to lay off their risk at the time of buying so they don’t get caught short without a hedge."
"They take every share imaginable to be sure they aren’t put out of business by some sort of initiative that takes GameStop to its rightful place of wherever these zealots think it can go," Cramer said.
A call option buyer has the right, but not the obligation, to own shares of a company at a certain price at some specified point in the future. He or she might think owning a call option on GameStop with a $350 strike price, when shares are trading at $300, is a better way to play the stock's momentum.
Options sellers, meanwhile, will often buy the underlying stock in the open market as its price moves higher, in order to hedge their risk, creating a virtuous, but potentially ephemeral, circle of ever-higher prices.
With some pointing to hopes that Chewy.com founder Ryan Cohen, who took a stake in GameStop last year, has a turnround plan for the group in the wake of Bell's departure, options purchases -- and the corresponding hedging from options sellers -- could have taken GameStop on its wild Wednesday ride.
Shares in the group were marked 68% higher in early trading Thursday, as well, and changing hands at $155.00 each, the highest since February 2.
Last month's Reddit-lead gainers, however, were also on the move, with AMC Entertainment (AMC) - Get Report rising 29% and Koss Corp. (KOSS) - Get Report up 71.1% in pre-market dealing, suggesting the r/Wallstreetbets chat group could be reviving its effort to attack hedge funds that are betting against various stocks with short positions.
GameStop was one of the most heavily shorted stocks on Wall Street prior to its mid-January surge, with a short interest reportedly at 140% of the outstanding float.
Data from S3 Partners, which tracks short positions, pegs the short-interest in GameStop at around 33.5% of its outstanding float.