The options market has grown massively in the past year largely on the backs of household investors buying cheap, weekly expiring, OTM call options resulting in explosive growth then decline of targeted tickers. Fundamentals have very little to do with this although sentiment in the name certainly helps. This is why I questioned your BlackBerry reasoning, because it was clear to me that the underlying was being manipulated.
The essential piece here is that it seems like social media has opened up a market hack and stimulus cheques and cheap money are making exploiting that hack trivial. In the olden days, megaphoning a position would lead one or more big fish to take the opposing position such as in a short squeeze/bull raid dynamic or would beef of the name for a sec, so the big players could sell and move on. That essentially stabilizes the market and improves functioning. Shorting is good! The market needs all the votes (transactions) it can get as voting improves information flow which improves efficiency.
With the now well-known gamma squeeze playbook, there doesn’t seem to be a way to counter.
1) A sentimental name is chosen prob through random aggregation of social media sentiment,
2) the name becomes a meme and goes viral,
3) people spend money on very cheap call options,
4) those call options force the underlying purchase of those stocks by the market makers. Essentially, small money leverages big market moves
5) The rising stock price + sentiment multiplies the buy in setting up a positive feedback loop
6) Algos lurk all around this and pump and dump as needed probably amplifying the effects.
Instead of countering, I imagine institutional traders that are free to chase new strategies are jumping aboard here. This was first discussed in the media in late August, 2020 when markets went briefly parabolic before the correction and it was revealed that there was massive dark-pool call option buying.
The cycle ends when the expiration nears or passes, smart money steps out, shorts the name or buys puts funded with sold calls that then have massive premium due to the high volatility that this dynamic sets up.