Navigating Meme Stock Volatility (If You Accidentally Get Caught In the Upswing)

While most tech professionals are unlikely to have their company stock get caught up in a “meme stock melt up”, it definitely does happen. And for me and my clients, it's occurred twice (First $LPA in 2024, and $OPEN in mid-2025).

It’s a wild ride, and presents both exciting opportunities and significant risks. The dramatic price swings can create substantial value, but they also require careful consideration of your financial goals and risk tolerance. And unlike a typical concentrated position in a company stock, things move really fast, which may require you to make decisions quickly.

Every situation is personal, but if you find yourself in a meme stock melt-up, the below is both (1) a primer for how/why meme stock spikes occur, and (2) a financial planning and risk management framework for how I have helped clients navigate it.

PRIMER: How Meme Stocks Actually Trade

Before we dive into strategy, meme stock dynamics are more than a bit odd, so it helps to understand what's occurring, why, and how it may affect the stock price.

TLDR: Meme stock dynamics are really weird....

Typically, an internet-famous personality publishes some research, their thoughts, a series of posts, or more — arguing why they believe "the company fundamentals support a higher price." But….this research is rarely rigorous or comprehensive. And in the vast majority of situations, most meme stock prices have come back down after initial excitement spike(s).

The Real Driver: Systematically overwhelming demand (to buy) vs. supply (to sell) of stock in the near term

Over the long term, the stock market tends to reward companies with strong and improving business results with higher stock prices. But in the near-term, multiple other factors can affect things. Just like any market, the stock market is driven by supply and demand, and there is a limited quantity of an item (in this case, shares of stock). Moreover, typically only a relatively small percentage of the overall shares of a company trade any given day (limiting it further).

So……if an internet personality can corral (or convince) enough retail investors of their thesis to buy the stock, it can create a situation where the demand to buy the stock vastly outnumbers the shares of stock people are willing to sell —> pushing the price up.

And if you really want to geek out, this is frequently amplified by two other factors:

(1) Call Options (Delta and Gamma effect)

A lot of retail investors also participate in buying “Call options”. They have unique properties, and they're hedged by wall street traders in a way that basically means that as the stock price increases, wall street traders need to buy more shares of stock, which can act like rocket fuel for the stock price over a period of time and shoot it ever higher. It's too much to cover in this article, but if you’d like to learn more, research Delta and Gamma for Call and Put options.

(2) Short Interest (and covering)

When you buy a stock, you make money when it increases in value. It is possible however to “sell short” a stock, where you make money when it declines in value. It’s not malicious or bad; nearly every company has some professional investors who have “short sold” their stock for any number of reasons. But if a lot of investors have sold short, it can create an interesting dynamic.

Why = most institutional investors (e.g. hedge funds) have risk allocations and/or limits they are allowed. So....If a stock they sold short is working against them (increasing in value, which creates a loss for them as a short seller), they likely hit up against their risk rules. If they cross them, they need to reduce their overall risk— which means they’re forced to buy stock (because this is how they reduce their short position, and thus, risk).

A Possible Trifecta

You get where I’m going here. If you can combine (1) high retail demand/buying + (2) lots of option buying, creating delta/gamma upside + (3) a stock with lots of short interest, which would require risk-reduction buying if the price increased —> it can create the potential for a lot of upwards stock price movement in a rapid amount of time (ie. meme stock).

To give a bit of data, historical patterns of meme stocks suggest that:

• Price spikes typically last anywhere from a few days to about 4 weeks

• Value changes can range from 50% to 1500% during these events

• After reaching peak prices, most stocks revert to levels much closer to their starting point

• There's rarely a clean "top" to identify, and no clear signal when the momentum is ending

Consider GameStop, which soared over $400 per share before eventually settling back around $20 — an 80% decline from its peak within just a few weeks.

Developing Your Personal Strategy (if you own stock that experiences a Meme Melt-Up)

First, a Reminder of How You Should Prioritize Your Finances

Priority 1: Your Financial Plan and Immediate Needs. If you have pressing financial needs — a home down payment, upcoming sabbatical, new family expenses, or debt to pay down — those funds should be taken off the table. Anything can happen any day in the stock market, and meme stock dynamics amplify this risk significantly. You don't need to sell your entire position, but your real-world financial needs should strongly influence your selling plan.

Priority 2: Investment Risk Management. Financial theory consistently shows that concentrating wealth in a single company carries unnecessary risk. While you don't have to follow this rule rigidly (and I don't follow it rigidly with my clients either) — it's backed by decades of data. Unless you're genuinely bullish on the company's long-term prospects with well-researched reasons, you'll likely experience lower stress and better risk-adjusted returns by selling some shares and diversifying your holdings.

Priority 3: Tax Optimization. Tax planning can be impactful, but it's typically 2-5% savings, and only in rare cases 20% or more. Meme stocks can increase hundreds or thousands of percent and can drop just by 40% or more in an hour. Trying to save a few percentage points in taxes matters, but should only be considered after you decide if/how much you want to sell and why.

A Tool To Consider: Apply "Regret Minimization" Thinking

Since your odds of timing this perfectly are extremely low, I encourage you to think through a “regret minimization” mental framework. Ask yourself which scenario would frustrate you more:

• Selling your position and watching the stock climb significantly higher

• Holding your position and watching the stock fall significantly lower

There's no universally right answer, but this mental exercise helps clarify your true risk tolerance and feelings about the investment — especially if/as the stock price moves rapidly, and thus you don’t have a lot of time to fully think through your approach as you would in other slower-moving situations.

I Recommend You Create a Structured Selling Plan

Rather than making emotional-driven decisions during volatile periods, I recommend trying to create a structured approach: develop a selling plan. This helps you have more rigor as the price moves, and ensure that you can (ideally) better balance the potential reward with the high level of risk. Two strategies I use with my clients for a selling plan are:

Sell on a Time-Schedule: Decide to sell a portion of your shares regularly over a set timeframe. This approach gives you the average price over the selling period rather than trying to time a single perfect moment, which feels fair to many people.

• Example: If you own 100 shares and want to sell half your holdings, you could sell 5 shares every day for 10 days

Sell at Set Price Points: Sell a percentage of your holdings at prespecified target prices. They may not get hit, but you never know what the stock's peak price will be. This creates a "ladder" that lets you capture upside, while typically ensuring you sell at least some at lower points too (in case those end up being the peak).

• Example: Sell 10% of your holdings at each of $3, $4, $5, $6, and so on

WARNING: Company Management May “Spike the Punch Bowl”

During meme stock events, company management often takes advantage of elevated share prices. While they may have believed their company stock was undervalued, they rarely believe it was undervalued by as much as a meme stock price increase may create.

And their job as management is to be stewards of the company capital and its best interests. As such, many times with a meme stock spike occurs, management will sell new shares of company stock to raise capital.

While this can be healthy for the company's balance sheet (improving its business fundamentals), it also dilutes existing shareholders.

And especially when it's a meme stock dynamic pushing prices up, it typically becomes a bad things for the upward momentum. What used to be an overwhelm of share buying now has to deal with a lot of new shares being sold. That creates a counter-balance effect —> which tends to neutralize the upward momentum (or more likely reverse it to downward momentum).

This has been a common pattern across multiple meme stock situations, so factor this possibility into your decision-making process.

Final Thoughts

Meme stock volatility creates unique opportunities and risks that don't fit traditional investment frameworks. The key is developing a plan that aligns with your personal financial situation, risk tolerance, and long-term goals — rather than getting caught up in the daily price swings, social media excitement, and emotional gyrations.

You don't have to be all-in or all-out. But I feel extremely confident that you taking a moment, developing a plan, and then sticking to it will result in a much better outcome for you (emotionally, psychologically, and financially), then if you skip that part.