An icon in the home product lines industry, Tupperware (TUP) – best known for its convenient food storage containers – has seen its share performance struggle since early 2018. Eventually, the company negotiated a dilutive restructuring of its debt load last year in a bid to save the flailing enterprise. However, as Barchart partner The Motley Fool argued, speculators already made the easy money on TUP stock.
Throughout most of this year, it appeared that the writing was on the wall. Indeed, in March, management warned that it lacked the conviction that the business could continue as a going concern. In addition, the company faced a liquidity crunch as demand for its core product stumbled. Interestingly, COVID-19 provided a temporary boost to TUP stock as quarantined households began cooking at home.
However, with the reopening of the economy, Tupperware began its descent into anonymity. Fundamentally, one of the central concerns for the brand is that it lacks compelling distinction. Further, because the products are long lasting, they are vulnerable to one-and-done purchasing behaviors. Ironically, the success of the offering is what may be contributing to the fallout in TUP stock.
Still, the underlying enterprise received an unexpected lifeline: the resurgence of the meme stock phenomenon.
Keith Gill – better known by his online moniker “Roaring Kitty” – posted an image on Sunday along with subsequent messages that implied that he’s ready to spearhead another rally in beaten-down securities that feature short-squeeze potential. Gill is known for catapulting the meme stock phenomenon that briefly turned Wall Street upside down.
Notably, several former memes saw their market value skyrocket. TUP stock was a clear downwind beneficiary, soaring above the $2 level before eventually closing at $1.76, up over 36% against the prior session.
While the latest development seems encouraging, investors should take a breather and carefully assess the situation.
TUP Stock Becomes a Centerpiece Attraction in Unusual Options Screener
With the drama in the market, it wasn’t surprising to see TUP stock as a top highlight in Barchart’s screener for unusual stock options volume. This dataset provides clues as to what the smart money is focused on.
Following the ringing of the closing bell, total volume reached 45,162 contracts against an open interest reading of 77,220 contracts. Monday’s volume metric represented an 879.02% lift against the trailing one-month average metric. Breaking down the details, call volume soared to 41,243 contracts versus put volume of only 3,919.
On paper, this pairing yielded a put/call volume ratio of 0.1, at face value indicating strong bullish sentiment. Interestingly, a peek into Barchart’s options flow screener – which filters exclusively for big block transactions likely placed by institutions – shows considerably more interest in options with bullish sentiment than bearish.
Stated differently, the dataset suggests that more big traders are buying calls rather than selling them. That’s bullish for TUP stock but it also raises a key question: why?
Partly, it may have to do with traders getting burned before with the meme stock phenomenon. Specific to Tuppeware, its shares feature a high short interest of 23.2% of the float. Generally, any reading beyond 20% is considered extremely high. As well, the short ratio stands at 11.19 days to cover. That means it will take more than two business weeks for short traders to fully unwind their short exposure.
In the near term, then, it is possible for TUP stock to add to its meteoric gains. Previously, speculators looked at the poor financial status of Tupperware and bet against it. However, a rising share price means that bearish traders must reacquire the securities borrowed to initiate the short position at a higher transactional price.
Further, the more time that passes, the more financial damage may materialize before they receive a margin call. Essentially, brokers may force speculators to close their positions; that is, buying the stock to close. That’s bad for the bear but amazing for the bulls.
Meme Trading Misconceptions
Despite the possibility of a near-term lucrative swing trade, the problem with meme stocks is that eventually, the fundamentals begin to matter. If it were the case that people could perpetually make money off these memes, they would never correct. However, we can see from the long-term charts of popular memes that eventually they collapse.
What makes the matter worse is that it’s not some nefarious agent that is responsible for the implosion. Rather, the early instigators of the contrarian trade simply dumped their position onto other retail traders, leaving them to hold the bag. In some ways, the meme trade operates like a pyramid scheme: the masses support the gargantuan returns of the few.
That’s perhaps the biggest misconception about the meme trade. It’s not an effort to restore parity to the little guys. Rather, it’s an attempt by the little guys to break into the top tier of society by manipulating and advantaging their peers. George Orwell’s “Animal Farm” comes to mind.
While that may be a contentious argument, just consider that unless you entered and exited popular meme stocks at the right time, they’ve largely been terrible investments. Likely, the same will be said about TUP stock and its second time behind the wheel.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
