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GameStop (GME - Free Report) the “meme stock” that shook the financial markets to the core at the beginning of 2021, with a short squeeze for the history books, is now enjoying another 15-minutes of fame. GME’s unprecedented trading activity showed Wall Street that this new generation of investors/traders possesses a market-moving power that they can't fight.

GME has since evolved from a fundamentally-backed stock into a media-fueled gambling tool, with any hint of optimistic news (or any rumor at all really) driving heavy volume momentum back into this egregiously overvalued public equity.

This has provided GameStop with seemingly endless funding, through secondary equity offerings of unquestionably overvalued stock. Still, the new management team is yet to provide any actionable plan for bringing this dying brick-and-mortar retailer back to life.

The latest earnings highlighted “expanded brand relationships” with PC gaming partners (ambiguous to say the least) and the imminent launch of GameStop’s NFT marketplace by the end of April, which is a long way from being a quantifiable segment (and likely even further from profitability).

As much as I want to believe in the GameStop comeback, its $13 billion market valuation is not even close to justified, with the management team offering investors no clear path to profitability. The company’s latest earnings report depicted the largest quarterly revenues for GameStop in 3 years. However, this topline expansion came at a substantial cost, revealing GME’s worst quarterly loss as a public company.

Analysts are increasingly bearish on this position following a lackluster January quarter report, driving down EPS estimates across the board, dragging down GameStop to a Zacks Rank #5.

Let me be clear about my recommendation: I am not suggesting that you short GME or take any position at all in the stock, but rather advocating for some profit-pulling with the shares looking shaky at its 200-day MA, toeing overbought levels after a 100% 2-weeks run-up.

The weekly option plays that are driving a large portion of the recent upside will begin to expire today and the attempted gamma-squeeze (leveraged moves from outside near-term option volumes) will start to abate.

Latest Catalyst

GME has caught a recent bid after the man the myth the legend, Ryan Cohen (Chairman of GameStop), who initially launched this moon-bound stock into the stratosphere when he revealed an over $76 million position in GME in January 2021 (more than 9 million shares), announced the purchase of an additional 100,000 shares on March 22^nd, 2022, which seemed to reignite this “meme stock” mania.

Now the GameStop management team is seeking shareholder approval for a stock split that is further fueling this rocket ship's reignition to the moon. Of course, there is nothing fundamentally beneficial about a stock split but it will allow for more retail traders to execute those 1-lot option contracts the market has been becoming increasingly accustomed to. These 1-lot option trades have much more profound implications on price action when you are talking about 10K+ of them. This is why recent stock splits are being rewarded with a "retail trading optionaility" premium.

GME is now up over 100% since its NFT-focused earnings report in mid-March, which demonstrated a top-line beat, and margin oppressing cost spikes that would have had any other group of shareholders shaking in their boots was a bullish signal for this new market cohort of (self-proclaimed) "diamond-handed apes."

The Big Short-Squeeze

A little more than a year ago, a fragmented group of freshman day traders on a Reddit message board called r/WallStreetBets (WSB) were unified by a single stock, GameStop, a dying brick-and-mortar retailer that held market-moving nostalgia.

The GME fuse was lit way before its parabolic moonshot in early 2021, as this new class of market participants began looking for value in the things they knew. GameStop quickly made its way to the top of that list in late 2020. GME could have actually been categorized as a value play in late-2020, trading under a $1 billion market cap into 2021, a valuation that suggested imminent bankruptcy. GME is now an over $13 billion public company.

Once Ryan Cohen announced RC Ventures’ activist position in GameStop, a cascade of retail investing capital flooded into this overly shorted public equity (short-interest above 100%), driving what appeared to be an endless self-fulling prophecy of upside success with near term call options adding fuel to its euphoric short-throttling price action (rally as much as 2,000% in a mere two weeks).

The Ryan Cohen Effect

Ryan Cohen, the co-founder of Chewy (CHWY - Free Report) and current Chairman of GameStop’s board, announced another more than $10 million “investment” for 100,000 GME shares, which he executed through his investment fund, RC Ventures, catalyzing the latest flood of euphoric meme trading activity.

Ryan Cohen now owns roughly 12% of GameStop turning his initial $76 million investment into nearly $2 billion.

Ryan Cohen’s $10 million GME purchase on March 22nd reinvigorated GME’s “meme stock” momentum as young day traders and hedge funds (momentum chasing) begin buying up absurd volumes of immediate-term call options (100,000s of calls expiring on Friday traded hands today), catalyzing some gamma-squeeze Déjà vu in GME – significant open interest (OI) in soon-to-expire contracts causes leveraged price action due to extreme moves in these Friday contracts’ delta, aka gamma (forcing market makers to quickly buy or sell shares to maintain a price agnostic position).

GME ticker mentions on the younger market participants’ favorite trading forum, r/WallStreetBets (WSB), have been the most substantial since last year, inspiring another big WSB winner, AMC (AMC - Free Report), to take off for no other reason than its “meme stock” categorization.

Final Thoughts

Unless you understand how the GME trade works (there is always a technical driver no matter the fundamentals, which appears to be a combination of Fibonacci-retracements and MAs) I would stay away from GME. GME is a trading mechanism at best (losing lottery-ticket at worst), not a buy & hold investment.