The stock market may be setting up for another meme stock frenzy as traders pile into some of Wall Street’s most heavily shorted names.
According to The Kobeissi Letter, there’s been a sharp spike in call option activity in recent months, with trading on heavily shorted stocks pushing overall call volume to more than triple earlier levels.
In July, the five-day average of net call option buying hit roughly 4.2 million contracts, approaching the peak seen during the 2021 meme stock mania. “That’s nearly in line with the peak levels seen during the 2021 meme stock mania,” The Kobeissi Letter noted.
A massive short squeeze is underway:
undefined The Kobeissi Letter (@KobeissiLetter) July 29, 2025
The 5-day moving average of net call volumes for the most shorted stocks jumped to ~4.2 million, the 2nd-highest on record.
That's nearly in line with the peak levels seen during the 2021 meme stock mania.
Call volume for the most shorted… pic.twitter.com/OaJq8FJVxm
If history repeats, these trading patterns could foreshadow another round of short squeezeswhen bearish traders are forced to buy back shares as prices rise, accelerating the rally further.
A familiar playbook
While betting against heavily shorted companies has long been a Wall Street strategy, the tactic exploded in 2020 and 2021 as pandemic stimulus money flooded the market.
Retail traders swarmed forums like Reddit’s WallStreetBets, fueling speculative rallies in beaten-down companies like GameStop (GME), AMC Entertainment (AMC), Bed Bath & Beyond (BBBY), and BlackBerry (BB).
The latest surge in call buying suggests another wave could be forming. But it may not be a repeat of the 2020-2021 frenzy.
According to Charles Schwab, the 2025 crop of meme stocks looks different from last time. New names leading the charge include Kohl’s (KSS), Krispy Kreme (DNUT), and 1-800-FLOWERS (FLWS).
As before, these rallies “may reflect the outside influence of social media posters on heavily shorted stocks, rather than underlying business performance,” said Joe Mazzola, Schwab’s head of trading and derivatives.
“We know we’re in it… With all the bull market euphoria and risk appetite, they tend to go on until they don’t, so it’s notoriously difficult to predict when it turns,” Victor Haghani, chief investment officer at Elm Wealth told Bloomberg,
That being said, meme trading isn’t capturing all retail flows.
As InvestorsObserver reported, retail investors poured a record $155 billion into stocks and ETFs in the first half of 2025, driving much of this year’s historic S&P 500 rally. So, the meme stock resurgence looks more like a byproduct of that broader risk-on wave.
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