AMC shares quadruple as retail traders raid hedge fund quick targets

Street performers in Minnie Mouse costumes walk past an AMC movie theater in Times Square, New York, at night on October 15, 2020.

Amir Hamja | Bloomberg | Getty Images

Shares in contested cinema giant AMC Entertainment more than quadrupled at the opening bell on Wednesday, amid a spate of trading activity in some of Wall Street’s worst-shortened stocks.

About 10 minutes after the session began, trading in stocks ceased for the first time due to volatility. The stocks were stopped several times during the first hour of trading when there was heavy activity.

Ninety minutes into the session, it was trading 222% higher at $ 16.27. Previously, it rose up to 310% immediately after the shares opened. During premarket trading, the stocks were up as much as 360%.

About an hour after trading, more than 500 million shares had changed hands – well above the 30-day average volume of the share of 86.8 million shares per day.

Individual investors create brief shortages by piling themselves into these names, while hedge funds, on the other hand, in short supply, cover their losses quickly. They promote their activities on the Wallstreetbets Reddit Board, which has 2.8 million members. AMC appeared to be a growing topic on the board.

Short selling is a strategy in which investors borrow shares of a stock at a certain price in the expectation that the market value will drop below that level when it is time to pay off the borrowed shares.

Retail investor influence – most notably in GameStop – has drawn the streets under its spell for the past few days, appealing to a new class of traders who grew up amid the pandemic. GameStop stock more than doubled on Wednesday, up 110%.

“The limelight has moved from Large Cap Tech / Retail Favorites to a largely ignored corner of grossly shortened small cap stocks,” Barclays said in a statement to clients on Tuesday. “Within a month, retail had a significant impact on the price and sentiment in these heavily truncated names and cemented investor dominance of retail options.”

TD Ameritrade announced on Wednesday lunchtime that certain transactions with GameStop and AMC Entertainment have been restricted “in the interests of reducing the risk to our company and our customers”.

AMC has pegged 24% of its float to short rates, and GameStop’s short rate is 138%, according to FactSet.

AMC rose 26% on Monday and 12% on Tuesday, and is up more than 370% this week. On Monday, the company announced it had received enough funding to stay open and operational through 2021.

“This means that any talk of an impending AMC bankruptcy is completely off the table,” said CEO Adam Aron.

During the month, AMC stocks are up more than 650%. Given the stock’s downtrend over the past few years, a lower gain is now responsible for a much larger percentage move.

The passion spread to a few other greatly shortened names in early trading. Bed Bath & Beyond jumped more than 35%. According to data from S3 Partners, the retailer is the second most-trimmed stock in the market. 64% of its float is sold short. Eastman Kodak, another speculative name, rose 16%. The short interest in this stock is around 20%.

Amid the surge in AMC Entertainment, AMC Networks’ shares were also on the move, up 15%. According to FactSet, AMC Networks’ short interest is 60%.

Short interest is the number of stocks that are sold short relative to a company’s total available stock of stocks.

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