Many using meme stock options when they can't use margins, says Mike Khouw

Key Concepts

Meme Stocks: Stocks that experience rapid price increases driven by social media hype and retail investor interest, often detached from fundamental value.
Meme ETF (Ticker: Meme): An Exchange Traded Fund specifically designed to track meme stocks.
Options Trading: The buying and selling of contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.
Put Options: Give the holder the right to sell an asset at a specified price. Buying put options is a bet on the price of the underlying asset decreasing.
Call Options: Give the holder the right to buy an asset at a specified price. Buying call options is a bet on the price of the underlying asset increasing.
Average Daily Volume (ADV): The average number of contracts or shares traded per day over a specific period.
Leverage: Using borrowed capital or financial instruments to increase the potential return of an investment. Options provide leverage.

Beyond Meat Stock Volatility and Meme ETF Inclusion

The stock of Beyond Meat (BYND) has experienced extreme volatility this week. On the day of the report, it saw intraday swings of up to 112% and down nearly 30%, ultimately closing near its opening price. Despite this daily fluctuation, the stock has more than quintupled in value since Monday. This surge is attributed to its inclusion in a new meme-focused Exchange Traded Fund (ETF) that began trading on October 8th under the ticker symbol "Meme."

Meme ETF Holdings and Performance

The Meme ETF, despite its focus on meme stocks, has underperformed since its inception, being down more than 9% since its trading debut. Beyond Meat is listed as a top holding, alongside other notable names such as Navatas Semiconductor, Critical Metals Corp., Open Door, QuantumCape, and Plug Power.

Options Market Activity in Meme Stocks

The options market has seen significant activity in various meme stocks. Mike Co highlights several examples:

Donut: Traded almost 70 times its average daily put volume.
Crispy Cream: Also experienced substantial put volume.
Beyond Meat: Traded over 11 times its average daily put volume.
Sweet Greens: Traded almost three times its average daily call volume.
Clover Health: Traded almost two times its average daily call volume.

Specific Options Trades in Beyond Meat

A notable options trade in Beyond Meat involved the purchase of 3.3 million contracts. Specifically, there was a block of 5,000 October 24th weekly strike puts that traded for $26. This trade is interpreted as a bearish bet, indicating that the buyers expect the price of Beyond Meat to fall by the expiration date of these options.

Rationale for Options Usage in Meme Stocks

The transcript suggests that options are being used by some investors as a way to gain leverage in meme stocks, particularly for those trading below $5 per share. Since margin trading might be restricted or less attractive for such low-priced stocks, options provide an alternative method to amplify potential gains (or losses) with a smaller initial capital outlay. However, this activity is characterized as purely speculative.

Conclusion

The trading action in Beyond Meat and other meme stocks, particularly in the options market, is driven by speculative interest, amplified by their inclusion in a dedicated meme ETF. While the ETF itself has seen a decline, individual meme stocks like Beyond Meat are experiencing extreme price swings. Investors are utilizing options, especially put options, to bet on further price declines, likely due to the leverage they offer for low-priced, volatile stocks where traditional margin trading might be less feasible. This activity is described as highly speculative.