Aside from studying the business fundamentals of investing, one can learn much from the behavior of other traders, especially retail traders who are passionate and relatively new to the game. Case in point, we all watched Keith Patrick Gill, also known as “Roaring Kitty”, a social media influencer who became a central figure in the GameStop stock surge of 2020. Gill shared his ideas on Reddit and YouTube which attracted an army of retail investors and they collectively stunned Wall Street. Millions of dollars was made on this spike while some institutions who were shorting GameStop folded, and that information should not be ignored. Also, a TV show THE IRRATIONAL can give us insight into the science of predictable irrationality as you will see in my post from 2023.
That being said, here are several observations that I have noticed while investing & trading technology equities that are experiencing a spike in share price seemingly from irrational exuberance.
- For starters, I define irrational spikes as sharp movements in the price of an equity beyond traditional expectations using the basic fundamentals of investing.
- These irrational spikes are often short-lived, usually lasting less than three business weeks (14.33 business days from my research).
- They are often fueled by retail traders vs institutional investors.
- They can experience huge pops in the share price during this period, some over 5% per day during a run-up.
- As the spike continues, short interest often grows substantially.
- These trades need to be carefully watched and closed early if possible to maximize profit.
Five companies that I trade have experienced such spikes. They are Tesla, Super Micro Computer, Nvidia, Circle and Coinbase as detailed below.
Tesla (TSLA) was where I first observed an opportunity to make money during what felt like irrational moves. In the early 2020s, I observed three such spikes with the average duration of 14.33 days and a $118 share price increase. Send me a message in the contact form should you wish to receive a copy of a white paper I did on my Tesla spike strategy.
Super Micro Computer had a run in 2024 where the stock increased, on average, 5.14% per day for one day short of three weeks and I was able to pull off two consecutive trades during that spike for a sizable profit. SMCI is a piggy-back trade to Nvidia as they offer A.I. servers where the Nvidia high-speed A.I. chips reside in a lightning fast and environmentally desired setting. Send me a message in the contact form should you wish to receive a copy of a white paper I did on my SMCI spike strategy.
Nvidia is and has been one of the best investments in history and has a track record of a three-pronged movement; spike, profit taking dip and plateau. Over the course of many years, especially in the past 3 years, Nvidia has grown substantially and the profit margins are superb, earning their stock value and surging share prices.
Most recently, Circle (CRCL) had their IPO with a target opening of $31 per share. Its’ opening spike ran from June 5th to June 23rd fitting the three-week assumption and ran-up to nearly $300 per share before the profit taking set in.
Finally, Coinbase (COIN) is experiencing a run-up as we speak, largely from the previous company, Circle’s IPO and excitement around what are called “stable coins”.
Don’t ignore this new breed of investor who may not agree with old-school fundamentals just because our beliefs and methods are different. There is much we can learn from one another.
RISK – Trading options may result in potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the options markets. Do NOT trade with money you can’t afford to lose.
