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Meme stocks are the single most common way Wheel traders blow up. The premium looks irresistible right up until the moment you get assigned and the stock gaps down 40-60%.
I see it constantly in Reddit communities I read, including r/thetagang, r/options, r/optionswheel. Traders selling puts on whatever is trending, collecting $500 in premium, then getting stuck with a $5,000 unrealized loss on a stock they have zero conviction in.
In the rest of this article I’ll discuss why I am vehemently against running The Wheel Strategy on meme stocks.
Table Of Contents
What Makes a Stock a “Meme Stock”
A meme stock is a stock whose price movement is driven primarily by social media hype, retail trading momentum, and crowd sentiment rather than underlying business fundamentals.
Key characteristics typically include:
- Massive retail following on Reddit, YouTube, TikTok, and FinTwit
- Extreme volatility disconnected from earnings or revenue
- High short interest (which often triggers squeeze attempts)
- A wide disconnect between the stock price and what the business is actually worth
- The “investment thesis” is based on social momentum, not business quality
The spectrum is wider than most people realize.
On one end, you have the obvious meme stocks: GameStop, AMC, Bed Bath & Beyond. These are the ones everyone points to and says “I’d never do that.”
On the other end, you have subtle meme stocks. These are the dangerous ones.
As I’ll discuss later in this article, a stock like SoFi has a huge retail following, heavy trading volume, and a brand that sounds legitimate…but the fundamentals don’t support the hype.
A stock can become a meme stock temporarily (during a squeeze cycle or viral moment) or persistently (an ongoing cult-like following regardless of what the financials say).
The defining feature is always the same: the “investment thesis” is the crowd, not the business.
Why Meme Stocks Are So Tempting for The Wheel Strategy
Meme stocks have extremely high implied volatility, which means option premiums are massive.
A 30-DTE put on a meme stock might pay 3-5x what the same delta and DTE pays on a quality stock.
This creates the illusion of easy money.
Then there’s familiarity bias. Everyone knows GameStop, AMC, SoFi, Palantir. They’re constantly in the news, constantly discussed. Familiarity feels like conviction.
But knowing a ticker is not the same as having a thesis on the company.
The echo chamber makes it worse. Reddit threads screaming “Diamond hands! It’s going to the moon!” create false confidence. The crowd’s enthusiasm gets mistaken for fundamental analysis.
Remember, the market isn’t offering you fat premium out of generosity.
High premium is high risk. The market is pricing in the probability of exactly the crash you’re trying to avoid, and that 3-5x premium isn’t a gift; it’s compensation for a level of risk that will eventually materialize.
If you’re newer to how options premiums work, What is The Wheel Strategy? covers the fundamentals of CSPs and CCs and why stock selection matters more than premium size.
What Happens When You Get Assigned on a Meme Stock
Unlike a quality stock with strong earnings, manageable debt, and a defensible business, a meme stock has no fundamental floor to catch it.
The hype was the only thing holding the price up.
When that hype fades (and it always does), the stock falls to wherever the fundamentals say it should be. Sometimes that’s 40% lower. Sometimes it’s 80%.
And, to make matters worse, the covered call phase that can help save quality stocks barely works here.
Covered calls on a stock that’s down 50% or more are nearly worthless. You’re collecting pennies while your capital is locked up for months, grinding a cost basis that’s so far underwater it might as well be on the Mariana Trench.
The SoFi Case Study
SoFi Technologies (SOFI) is the perfect cautionary tale because it’s the meme stock that traps smart people, and it’s a stock that I see is still popular on Wheel sub-reddits.
Furthermore, it’s not obviously broken like GameStop or AMC. SoFi has revenue growth, a banking charter, and a recognizable brand. It looks legitimate.
That’s exactly what makes it dangerous.
Here’s what happened:
SoFi ran up roughly 650% from December 2022 to November 2025, peaking near $32.
It was all over Reddit, including /r/wallstreetbets, r/thetagang, r/options, r/optionswheel, to name a few. Traders were Wheeling it heavily because the premiums were rich.
The “fintech” illusion was central to the thesis. SoFi brands itself as a fintech company, but the core business is unsecured personal loans. In Q4 2025 alone, SoFi originated a record $7.5 billion in personal loans.
Here is the fundamental reality underneath the hype:
- Forward P/E of 33x vs. a consumer finance industry average of roughly 10x
- Credit quality tied directly to unemployment rates
- Muddy Waters Research (a well-known short seller) published a March 2026 report alleging the real personal loan charge-off rate is roughly 6.1%, not the reported 2.89%, claiming loans are sold just before being charged off to keep rates artificially low
- Muddy Waters’ CEO also flagged AI-driven job displacement as a direct threat to SoFi’s core borrower base
As of May 2026, SoFi trades around $15.81 — down roughly 50% from its November 2025 highs, and down 44.5% YTD.
Now picture the Wheel trader who was selling CSPs at $28-30 strikes during the height of the Reddit hype.
They got assigned and are now sitting on massive unrealized losses on a stock whose core business is unsecured personal loans with questionable accounting practices. They’re stuck selling covered calls at $15-16 strikes trying to grind back from a 45%+ drawdown.
Let’s do the math. Say you sold a CSP on SoFi at a $28 strike, collecting $2.50 in premium:
- Cost basis: $28 - $2.50 = $25.50
- Current price: $15.81
- You’re down $9.69 per share ($969 on 100 shares)
- Covered calls near your cost basis are paying almost nothing because the stock is so far below $25.50
Note: For more on what assignment looks like mechanically and how to handle it, see what happens when your cash secured put gets assigned.
But the key point here is that assignment on a quality stock is manageable. Assignment on a meme stock is a trap with no clean exit.
The Obvious Meme Stocks
SoFi is the subtle case. The obvious ones are worse:
- GameStop (GME): Lost roughly 80% from its meme-era peak. Net loss of $331M. The stock everyone says “I’d never do that” — and then they do the same thing with subtler names.
- AMC Entertainment (AMC): Lost $135M in a single quarter. A declining business propped up entirely by crowd enthusiasm.
- Bed Bath & Beyond (BBBY): Went bankrupt. Anyone assigned on puts lost everything if they couldn’t get out.
For a deeper look at the full spectrum of Wheel risks, including the capital lock-up and drawdown math that makes meme stock assignment so devastating, see understanding risks with the Wheel Strategy.
“Popular” Doesn’t Mean “Fundamentally Strong”
Popularity is not a thesis.
Being mentioned on r/wallstreetbets, trending on Yahoo Finance, or discussed on YouTube does not mean a stock has fundamental strength.
My personal philosophy (and the philosophy behind WheelMetrics) is:
Do your own research.
- Check the valuation metrics
- Check the profitability metrics
- Check the growth metrics
- Check the revision trends
If the stock doesn’t pass on fundamentals, the social media hype is irrelevant.
Many meme stocks are actively losing money, have deteriorating revenues, carry excessive debt, or trade at absurd valuations relative to earnings (if earnings exist at all).
The distinction between “I know this stock” and “I have a thesis on this stock” is is paramount to your success.
Knowing a ticker because it’s trending on Reddit is not conviction. Conviction comes from understanding the business, reading the financials, and building a thesis on why the stock should be worth more in 12 months based on fundamentals.
The acid test comes straight from the core principle of stock selection for the Wheel:
Would you buy this stock outright and hold it for 6-12+ months if options didn’t exist?
If the answer is no, don’t sell puts on it.
How to Recognize Meme Stock Characteristics
Here’s a practical checklist you can run on any stock before selling puts.
Red flags that a stock has meme characteristics:
- Constantly discussed on
r/wallstreetbets,r/thetagang, or other Reddit investing subs - Price movement disconnected from earnings or revenue (stock goes up 30% on no news)
- Extremely high short interest (often triggers squeeze attempts)
- Options premiums are abnormally high relative to similar-sector stocks
- The “bull thesis” is primarily about short squeezes, social movements, or “sticking it to hedge funds” rather than business performance
- The company is unprofitable with no clear path to profitability
- Heavy retail ownership with a cultish community around it
The more boxes a stock checks, the more dangerous it is for the Wheel.
The Subtle Meme Test
Not every meme stock is obvious. SoFi wasn’t. It had revenue growth, a banking charter, and a recognizable brand.
Can you explain why this stock should be worth more in 12 months based on earnings growth and business fundamentals alone?
No mention of social media. No mention of short squeeze potential. No mention of what the Reddit community thinks.
If you can’t make the case on fundamentals — just fundamentals — it’s probably a meme stock.
(Yes, this test is intentionally strict. That’s the point.)
Volatile Doesn’t Always Mean Meme
I’ll wrap up by saying not all volatile stocks are meme stocks.
A quality stock can have high implied volatility during earnings season or during a broad market selloff. That’s temporary. The volatility has a specific cause, and it fades once the event passes.
Meme stock volatility is structural and persistent. The price has no fundamental anchor, so it swings wildly based on crowd sentiment, short interest, and whatever is trending on social media that week.
If the volatility has a fundamental explanation, it’s not meme-driven. If the volatility is the stock’s identity, that’s a meme stock.
Fat Premium Is Not Free Money
The market prices risk into premium.
When a stock offers abnormally rich options premiums, it’s because the market expects exactly the kind of violent move that will destroy your position.
Meme stocks are the purest expression of this principle. The premium looks like easy money right up until assignment, when you’re left holding shares of a stock with no fundamental reason to recover.
Always apply the 6-12+ month ownership test. If you can’t build a fundamental thesis for owning the stock long-term (independent of social media hype, premium size, or crowd enthusiasm), it doesn’t belong in your Wheel portfolio.
Stop chasing premium. Start screening for quality.
