Meme Stocks Making a comeback?

Volumes are spiking

GameStop (GME) and AMC Entertainment (AMC) are experiencing a surge in trading volume. AMC has reached 500 million shares and GME has traded 137 million. Keep looking out for halts.

Some other stocks seeing spikes in volume are:

SPWR (SunPower)
RDDT (Reddit)
KOSS (Koss Corp)
BB (BlackBerry)

Below is a typical "volatility smile".

This indicates that the market expects high volatility for options that are further out of the money. This is evident in the Nasdaq (QQQ).

The midprice vs. strike price plot shows that call prices decrease and put prices increase with strike prices, intersecting around the current price of the underlying asset. Nothing unusual here.

A "meme" stock's options skew looks quite different.

AMC's volatility skew indicates higher volatility for options with higher strike prices, suggesting that the market expects more volatility or uncertainty for AMC at these higher prices.

Below, we can see that AMC and GME put options are significantly cheaper than call options at the same distance from the current price.

Two Trade Ideas

NVDA ($899) Iron Condor (MAY24)

NVDA reports earnings on May 22nd, Wednesday of next week. The option market is pricing in a roughly +/- $100 potential price movement - over 10% of the current stock price. If you think it might be disappointing for both the bulls and bears, a roughly 1 Standard Deviation iron condor trades at roughly $2.70, short the 785/775 put spread and short the 10/25/1035 call spread.

SPY ($521) Put Diagonal Spread (JUL/JUN)

We've had a nice rally to just a hair off all time highs. The Meme stocks are going wild, vol is at lows, and there are a whole host of economic data points coming this week. If you think we might see a pullback, a put diagonal is a cheap way to get some short delta. Long the 520 put in JUL and short the 505 put in JUN nets around 20 short delta for only $5.85 debit.

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