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Expand chart
Data: IHS Markit; Chart: Will Chase/Axios

The origin story of the meme stock phenomenon centered around an uprising by retail investors, who wanted to make money at the expense of Wall Street short-sellers.

But in today’s meme stock world, there’s not that much short interest in the names most popular with the WallStreetBets crowd. Instead, trading activity appears to be increasingly driven by call options, the Wall Street Journal reports.

Driving the news: Mudrick Capital — a hedge fund that profited from AMC Entertainment trades this year — recently saw its flagship fund lose 10% in just a few days thanks in part to bets on AMC options, the WSJ says.

Why it matters: Though meme stocks are off their highs, they continue to trade at sky-high valuations disconnected from fundamentals. Many, like AMC, GameStop and newcomer Clover Health, booked another day of gains in Friday's session.

How it works: Call options give buyers the right to purchase a specific stock within a certain time period. A buyer of the call option makes money when the stock rises in price.

  • An increase in call options activity can force the sellers of the options to buy the stock, since they may have to deliver the shares. This pushes the stock price up.
  • The chain of events is known as a gamma squeeze.

State of play: Investors like hedge funds could be buying certain stocks to try to trigger a gamma squeeze, Helen Thomas, founder of U.K.-based financial research firm Blonde Money, told the WSJ.

  • Such a squeeze can accelerate a stock's ascent — and also its decline.

The bottom line: “Hedge funds are scared to have holdings on significant short positions [in meme stocks], even if fundamentally it makes a lot of sense,” Lorenzo Di Mattia, chief investment officer of Sibilla Capital, told WSJ.

Go deeper

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North and South Korea restart hotline and pledge to improve ties

South Korean President Moon Jae-in and North Korean leader Kim Jong Un in Pyongyang, North Korea, in 2018. Photo: Pyeongyang Press Corps/Pool/Getty Images

North and South Korea's leaders have pledged to improve relations and resume previously suspended communication channels between the two countries.

Why it matters: The resumption of the hotline on Tuesday comes despite stalled negotiations between Washington and Pyongyang on the denuclearization of North Korea, which broke down after a second summit between then-President Trump and North Korean leader Kim Jong-un ended without a deal in 2019.

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Team USA's 17-year-old swimmer Lydia Jacoby has won the Olympic gold medal in the women's 100-meter breaststroke at the Tokyo Games, completing the race with a time of 1:04.95.

Of note: The Alaskan beat defending Olympic champion and fellow American Lilly King, who won bronze. Tatjana Shoenmaker from South Africa took home the silver medal.

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Scoop: Pelosi’s new COVID plans

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House Speaker Nancy Pelosi (D-Calif.) is expected to extend proxy voting through the fall — and potentially until the end of the year — Democratic lawmakers and aides tell Axios.

Why it matters: The spread of the Delta variant has alarmed both members and staffers anxious about interacting with the unvaccinated. Pelosi’s anticipated move — continuing an emergency COVID-19 measure enacted last year so lawmakers could vote remotely — is aimed at allaying those concerns.