July 22 |  American real estate technology company OpenDoor Technologies, Inc.(OPEN.US), once on the brink of being delisted, has recently emerged as a dark horse "Meme stock" in the U.S. market, soaring by more than 500% this month.

On Monday, Opendoor's stock price experienced extreme volatility. It surged over 120% at one point before a sharp pullback in late trading led to a temporary trading halt. The stock ultimately closed the day with a remarkable 42.67% gain, and its single-day turnover rate reached an astonishing 260%.

The options market saw similar frenetic activity, with Opendoor's total options volume hitting a staggering 3.4 million contracts on Monday, topping the charts for individual stock options in the U.S. and marking a 74-fold increase from its 90-day average.

What's behind this massive surge, and why are retail investors flocking to Opendoor? More importantly, how can the average investor identify potential "Meme stocks" before they explode?

The "100-Bagger" Call from a Renowned Investor

The frenzy was ignited on July 15, when well-known investor Eric Jackson posted a stunning message on the social media platform X, announcing he had established a position in OpenDoor Technologies, Inc.(OPEN.US). "We believe it could be a 100-bagger in the coming years," he stated.

Jackson, the founder of EMJ Capital, has a "prophet-like" reputation in investment circles, having previously made a successful call on the major turnaround of Carvana(CVNA.US). His tweet acted as a spark, quickly spreading across investor forums like Reddit(RDDT.US), Stocktwits, and X, prompting retail traders to buy the stock and share their gains. In just a few days, Opendoor's share price doubled, solidifying its status as one of the market's hottest Meme stocks.

How Did the Meme Stock Frenzy Happen?

Opendoor is the largest iBuyer (instant buyer) platform in the United States, using an algorithmic system to help homeowners sell their properties quickly. The company then resells the homes, aiming to automate and technologize the second-hand housing market. 

After going public via a SPAC in 2020, it initially enjoyed significant hype. However, aggressive interest rate hikes by the Federal Reserve, a downturn in the U.S. housing market, and profitability challenges sent the company into a spiral of losses, with its stock price plummeting to around $0.50, dangerously close to delisting.

Jackson’s rationale for his bullish stance is clear. "This is a bet on the future," he wrote on X, "just like everyone thought crypto was finished in early 2023, but Coinbase survived."

He outlined four key points suggesting Opendoor may be at the intersection of an industry bottom and a corporate turning point:

1. Limited Competition: Opendoor now faces almost no rivals in the iBuyer space.
2. Peak Interest Rates: The worst may be over for the housing market as interest rates have likely peaked.
3. Profitability Inflection: The company is expected to report its first-ever positive EBITDA in its upcoming August earnings report.
4. Long-Term Growth: The company has the potential to return to a trajectory of doubling its revenue, with estimates projecting an increase from $5.2 billion in 2024 to $11.6 billion by 2029.

Finance professor Derek Horstmeyer notes that as retail investors piled in, Opendoor began exhibiting classic Meme stock characteristics: a high percentage of short interest, a recent history of steep price declines, significant speculative discussion on Reddit, and the involvement of aggressive investors—the same four factors present before the historic GameStop rally.

The formation of these retail-driven rallies is influenced by several factors. 

The rise of social media platforms like Reddit and X allows retail investors to access and share stock information more easily, creating a powerful herd effect where influencers and celebrities can have a significant market impact.

Furthermore, many popular Meme stocks, such as GameStop and AMC Entertainment, were companies facing bankruptcy after prolonged periods of poor performance and stock declines. A sentiment of rebellion against Wall Street institutions fuels some retail investors, who believe that institutional investors manipulate the market through short-selling, harming individual investors. By banding together to buy heavily shorted stocks, they aim to trigger a "short squeeze," forcing short-sellers to buy back shares at a loss and, in their view, achieve a form of social justice.

Finding the Next "Meme Stock"

The underlying logic of Meme stock rallies often centers on a short squeeze. Companies on the verge of collapse often attract significant leveraged short positions. This makes them highly susceptible to a squeeze, where a rush of buying forces short-sellers to close their positions, causing a cascading, vertical price surge.

According to FactSet data, Opendoor's short interest currently stands at over 20%, close to GameStop's 21.4%. The surge in a Meme stock's price can also trigger a gamma squeeze in the options market, where rising prices lead retail investors to buy call options, compelling market makers to purchase the underlying stock to hedge their positions, which in turn drives the stock price even higher.

Historically, stocks with a short interest rate exceeding 40% are considered highly vulnerable to a short squeeze. Based on this logic, here is a list of stocks with high short interest according to recent Nasdaq and NYSE data.

Potential "Meme Stock" Watchlist (For informational purposes only):

Risk Warning

It is crucial to note that the meteoric rise of "Meme stocks" like OpenDoor Technologies, Inc.(OPEN.US) and GameStop Corp. Class A(GME.US) can come to an abrupt halt. These companies often continue to face severe fundamental challenges and lack strong business catalysts for sustained growth.

Moreover, the enthusiasm of retail investors can be fleeting; they may rally behind a stock quickly and abandon it just as fast. Participating in Meme stock trading involves extreme volatility, and investors must prioritize risk management at all times.