Meme stocks now make up 40% of Wall Street’s options market

Meme trading is swallowing Wall Street’s options market whole. On Wednesday, nearly 40% of total options volume came from a small cluster of stocks with no real business momentum, just heavy internet hype and sky-high short interest, according to data from CNBC.

The tickers leading the charge are Beyond Meat’s BYND and Krispy Kreme’s DNUT, names that Reddit traders can’t stop gambling on, despite both companies being in the red revenue-wise.

Traders target BYND and DNUT with high-risk options

On Wednesday, options traders went ballistic as BYND traded more than 3.3 million contracts, roughly 9.4 times its average 20-day volume.DNUT went even crazier, with contracts trading at 38 times its typical options activity.

Both names are under $5 per share, which makes them too cheap for most margin accounts. So retail traders are turning to options, where a few bucks can control hundreds of shares, for the same high-stakes action.

The most traded BYND contract was the October 24 weekly $3 put, with 147,000 contracts changing hands at an average of $0.415 per contract.To break even, the stock would need to fall $1, about 28%, within two trading days.

Meanwhile, 104,000 contracts were traded on the weekly $4 calls, priced around $1.455. That’s a bet the stock will climb to $5.455, more than 52% higher, before Friday’s close. That’s two moonshots in opposite directions. And at least one will be worthless by 4 p.m. Friday.

There’s a reason this happens.These stocks are impossible to borrow, making it difficult for hedge funds to short them directly.

But if a stock is loaded with short interest and retail traders push prices up, those funds may be forced to cover, buying shares at higher prices, which makes the rally worse. That’s the game. And it’s why meme traders aren’t tagging along with institutions. They’re betting against them. They want to be David against Goliath.

This has nothing to do with earnings. DNUT and BYND both operate real businesses, but neither is profitable. BYND keeps reporting losses. DNUT has weak margins and debt problems. None of that matters. What matters is the story online, the tweets, the TikToks, the posts that spark a frenzy. That’s what sets the price, not revenue or market share projections.

Back in 2021, traders on Reddit’s WallStreetBets forum turned stocks like GameStop (GME) and AMC Entertainment (AMC) into weapons. That’s where Keith Gill, aka Roaring Kitty, became something of a cult figure.