The stock market has been dropping in choppy trading for more than a month, but on Thursday shares of two meme stocks surged.
The company was halted multiple times for volatility. AMC Entertainment's stock price went up 18%.
A group of retail investors coordinated trades on online chatrooms to create massive short squeezes in AMC and GameStop, which were widely hated by hedge funds and other players. Many hedge funds and other short sellers were hurt by the rallies.
Since then, the stocks have retreated from their peak prices, and short-sellers have started to build positions again. AMC has a short interest of 19.5%, while GameStop has a short interest of 21.4%. A company's available shares are sold short.
Large bets against the company can sometimes lead to dramatic one-day moves in a stock, as hedge funds move to close out their short positions when a stock rises, thus creating more buying pressure. The process is called a short squeeze.
Even with Thursday's big moves, the stocks are still well below their first half of 2021. The stock was trading between $90 and $100 per share on Thursday.
AMC was at around $12 per share on Thursday.
Because the market caps of the companies have fallen so much, it is easier for just a few trading shops or even one large fund to force a new short squeeze.
AMC and GameStop took advantage of their temporarily elevated share prices to sell additional stock and raise capital. Adam Aron, the CEO of AMC, made a big effort to embrace the retail investors who participated in the rally, answering questions from small-dollar traders on earnings calls and introducing shareholder perks at the physical movie theaters.
AMC used the cash it raised to buy other theaters. The small gold mining company that the company bought a stake in has a shaky financial history.
CNBC's Yun Li contributed to the report.
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