Keith Gill, who calls himself Roaring Kitty online, has posted to Reddit that he has a $116 million position in GameStop (NYSE:GME), roughly 5 million shares. Gill also bought calls in GME stock at $20.
GME stock rose 80% in pre-market trading, and other meme stocks rose as well. It was trading at about $41 per share at 8:30 a.m., with a market capitalization of over $14 billion.
Other “meme stocks” rose in sympathy. AMC Entertainment (NYSE:AMC) was up about 20%. Virgin Galactic (NASDAQ:SPCE) rose 9%.
Game On
Meme stocks are usually thinly traded and have relatively low market caps. This lets individual traders, especially those with an online following, cause them to run up.
The play is as old as the markets. In the late 1970s, the action was often in “penny stocks” traded in Vancouver, positions advertised in magazines and newspapers. Now, it’s on listed securities traded in New York, with positions advertised online.
Fellow InvestorPlace contributor Hope Mutie recently suggested three other stocks that might become memes in the new run-up.
Traders can profit from these names if they time investments to the rise and sell before the fall. GameStop, a video game retailer, was marginally profitable last year with sales of roughly $5.7 billion.
Management can also profit from meme stock trading. GameStop’s management sold $933 million in shares last month and has a shelf registration to sell more. AMC used the latest run-up to sell $250 million in shares and reduce debt.
The danger is that meme stocks are highly volatile, and big traders don’t have to tell you the moment they get out. Small traders who “Hold On for Dear Life” (HODL) wind up “holding the bag” with nearly worthless positions when the music stops.
GME Stock: What Happens Next?
Gill will likely make money in his trades. The calls are already profitable, although they cost him little.
You may not be so fortunate. If you want to play, be careful.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
