Bed Bath & Beyond was up about 2%. Beyond Meat plunged 20% at the opening bell following weak earnings results, but the plant-based food giant reversed course and was briefly higher. It ended the day down just 4%.
Many short sellers – investors who borrow shares and sell them in hopes of buying them back at a lower price – are betting big against these meme stocks.
It’s a very risky strategy, though. If a shorted stock goes up from the price the short seller purchased it, the investor can lose a lot of money.
As heavily shorted stocks climb, short sellers may be forced to quickly cover their positions by buying back the stock to avoid even bigger losses. This short covering can feed on itself, leading to a “squeeze” that pushes the stock price higher and higher.
Investors in AMC and other meme stocks even have an acronym to describe this phenomenon: MOASS, which stands for Mother of All Short Squeezes.
Some would argue that short squeezes aren’t a good reason for a stock to climb because they have little to do with a company’s fundamentals, such as sales and earnings.
But others note that individual investors should be able to fight back against larger institutional firms and hedge funds that may be unfairly targeting a stock and shorting it.