(Reuters) – GameStop Corp closed 6% lower on Friday as an early rally failed, but shares ended the week up 151% in a fresh rise that left analysts baffled.
Shares of the video game retailer closed at $ 101.74 after falling from a session high of $ 142.90. The rocket’s weekly rise came despite a market sell-off that sent the benchmark S&P 500 index .SPX 2.5% less during the same time.
Analysts have struggled to find a clear explanation, with some skeptical that the rally would have legs.
“You may be able to make some business money fast and it could be a lot of money, but in the end, it’s the dumbest theory,” said Eric Diton, president and managing director of The Wealth Alliance in New York. The theory refers to buying stocks that are overvalued, anticipating that a “bigger fool” will buy them later at a higher price.
Most analysts ruled out a short contraction like the one that fueled GameStop’s rally in January, when individual investors using Robinhood and other apps punished hedge funds that had bet against stocks, forcing them to undo short positions. Many GameStop buyers were inspired by online investment forums on Reddit and elsewhere.
Short interest accounted for 28.4% of float on Thursday, compared to a peak of 142% in early January, according to S3 Partners.
Options market activity on GameStop, which has returned to the top of the list in a social media-driven retail trading frenzy, suggested investors were betting on higher prices, higher volatility, or both.
Refinitiv data showed that retail investors have been buying out-of-the-money call options, which have contract-to-buy prices much higher than the current share price.
Many of those options contracts expire on Friday, which means big wins for those who are betting on a further increase in GameStop’s share price.
Call options, profitable for holders if GameStop shares hit $ 200 and $ 800 this week, have traded especially heavily, the data showed. GameStop shares traded this week at $ 184.54 on Thursday, well below the intraday high of $ 483 it reached in January.
“Stakeholders are looking to leverage all they can to maximize their impact, and timing matters,” said David Trainer, CEO of investment research firm New Constructs. “The expiration of the options will contribute to your strategy on how to push the stocks as far as they can and maximize your profits.”
Bots on major social media websites have been promoting GameStop and other “meme actions,” though it was unclear to what extent they influenced prices, according to an analysis by Massachusetts-based cybersecurity company PiiQ Media. .
The US Securities and Exchange Commission (SEC) suspended 15 companies from trading on Friday due to “questionable commercial and social media activity.” GameStop was not among them.
The 15 companies joined the six actions it recently suspended due to suspicious activity on social media.
Robinhood said it has received inquiries from regulators about temporary trade restrictions it imposed during a wild rally in short stocks earlier this year.
Other Reddit favorites were down on Friday as well: Movie theater operator AMC Entertainment was down 3.4%, headphone maker Koss was down 22.4% and marijuana company Sundial Growers was down 2.9%.
Report from Aaron Saldanha in Bengaluru; additional reporting by Caroline Valetkevitch in New York and Devik Jain and Sruthi Shankar; Written by David Randall; Edited by Alden Bentley, Shinjini Ganguli, Anil D’Silva, Dan Grebler and David Gregorio