By Medha Singh and Saqib Iqbal Ahmed
(Reuters) -Retail traders powered a nearly 20% jump in GameStop shares to a two-month high in regular trading on Wednesday, extending a rally ahead of the company's quarterly results next week and underscoring a return in appetite for risk.
The meme stock is up nearly 36% over the last two sessions at $15.31.
"Speculation is back ... and GameStop is ground zero for speculation," Steve Sosnick, chief strategist at Interactive Brokers, said.
AMC Entertainment and Cathie Wood's ARK Innovation ETF - other favorites among retail traders - were up nearly 3.5% and 0.5%, respectively.
The recovery in meme stocks comes as the S&P 500 closes in on its highest level for 2023 on hopes U.S. interest rates have peaked, breathing life into speculative trading that has struggled this year.
GameStop closed about 13% higher on Tuesday. Individual investors purchased $1.92 million worth of the company's shares on a net basis on Tuesday, their highest since Aug. 6, data from Vanda Research showed.
Both stocks were among the most discussed by traders on social media site stocktiwts.com on Wednesday.
GameStop is set to post third-quarter results on Dec. 6, with analysts expecting its net loss to narrow to $25.6 million from $93.4 million a year earlier.
About 21.6% of GameStop's shares were sold short, according to data and analytics firm Ortex, and bearish investors stand to lose about $200 million on Tuesday and Wednesday combined.
"Some short sellers may be concerned both by this price move but also that GameStop will release better-than-expected earnings next week," said Peter Hillerberg, co-founder of Ortex.
The surge in GameStop shares was backed by strong options activity. Some 230,000 GameStop options contracts traded by 11:38 a.m. (1638 GMT) with the bulk in call options, typically bought to bet on shares climbing higher.
Large purchases of out-of-the-money call options - contracts that are not profitable but stand to gain in value as the stock climbs - can sometimes give an additional lift to a stock's price.
"As long as people continue to buy calls that should pressure the stock to continue going higher," said Brent Kochuba, founder of options data platform Spotgamma.
"Another 15% or 20% (move) higher is still on the cards."
With GameStop shares at around $15, call options betting on the stock finishing higher than $16 by Friday were the most heavily traded GameStop options.
Sosnick, however, cautioned that speculative rallies in the recent past have been quick to peter out.
Shares of GameStop are down 27% this year through Tuesday's close, while those of AMC have shed 80% of their value in the same period.
(Reporting by Medha Singh in Bengaluru and Saqib Iqbal Ahmed in New York; Editing by Sriraj Kalluvila)
