(Reuters) – GameStop Corp closed 6% lower on Friday as an early rally hit, but the stock ended the week up 151% in a renewed rise that puzzled analysts.
The video game store’s stock closed at $ 101.74 after pulling back from a session high of $ 142.90. The weekly rocket ride came higher despite a wider market sell-off that sent the benchmark S&P 500 .SPX 2.5% lower in the same time.
Analysts struggled to find a clear explanation, and some were skeptical that the rally would have legs.
“You could be able to make some money quickly and it could be a lot of money, but in the end it’s the bigger silly theory,” said Eric Diton, president and general manager of The Wealth Alliance in New York. The theory refers to buying stocks that are overvalued, expecting a “bigger fool” to buy them later at a higher price.
Analysts usually ruled out a short squeeze, such as the one that sparked the GameStop rally in January, when individual investors using Robinhood and other apps penalized hedge funds that had bet against the stocks, forcing them to cut short positions. Many GameStop buyers took their cues from online investment forums on Reddit and elsewhere.
Short-term interest rates accounted for 28.4% of the float on Thursday, up from a peak of 142% in early January, according to S3 Partners.
GameStop’s options market activity, topping the list again 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 bought deep out-of-the-money call options, for which contract prices are much higher than the current stock price.
Many of those options contracts were due to expire on Friday, making a nice profit for those betting on further gains in GameStop’s stock price.
Call options, profitable for holders when GameStop stock hit $ 200 and $ 800 this week, have been particularly heavily traded, the data showed. GameStop’s stock traded to $ 184.54 on Thursday this week, well below $ 483 on the day it reached in January.
“The actors are trying to use everything they can to maximize their impact and timing is important,” said David Trainer, CEO of investment research firm New Constructs. “Expiration of options will contribute to their strategy of pushing stocks as much as possible and maximizing profits.”
Bots on major social media websites have hyped GameStop and other “ meme stocks, ” although the extent to which they affected prices was unclear, according to analysis by Massachusetts-based cyber security firm PiiQ Media.
The US Securities and Exchange Commission (SEC) on Friday suspended trading in 15 companies over “dubious trading and social media activity.” GameStop was not there.
The 15 companies were in addition to six stocks it had recently shelved due to suspicious social media activity.
Robinhood said it has received inquiries from regulators about temporary trading restrictions it imposed during a wild rally in shorted stocks earlier this year.
Other Reddit favorites were also lower on Friday, with cinema operator AMC Entertainment at 3.4%, headphone maker Koss at 22.4% and marijuana company Sundial Growers at 2.9%.
Reporting by Aaron Saldanha in Bengaluru; additional reporting by Caroline Valetkevitch in New York, and Devik Jain and Sruthi Shankar; Written by David Randall; Editing by Alden Bentley, Shinjini Ganguli, Anil D’Silva, Dan Grebler and David Gregorio