Retailer favorite AMC soars on option buying, entices investors with free popcorn

Shares of AMC Entertainment Holdings Inc (AMC.N) more than doubled to record highs on Wednesday, continuing a breathtaking rally fueled in part by heavy options trading, as the operator of the movie chain made promoting free popcorn to investors.

Shares jumped 97.3% to $ 63.23, after hitting a high of $ 72.62 even though they were halted due to volatility earlier in the session.

The massive increase in shares of AMC, of ​​around 3,000% this year, is starting to resemble the mad race in shares of GameStop Corp (GME.N) earlier this year. Shares of the video game retailer rose more than 1,600% in January, in part as bearish investors unwound their bets against heavily shorted stocks as buying increased.

Other so-called memes actions featured on Reddit’s WallStreetBets and other online forums, including security software provider BlackBerry and headset maker Koss Corp (KOSS.O), also saw big gains.

“It’s the same stock 2.0,” said Steve Sosnick, chief strategist at Interactive Brokers.

AMC CEO Adam Aron, who embraced the retail frenzy for his company’s stock on Wednesday, Free big free popcorn, even for the smallest investor who subscribes to a regular newsletter.

The AMC rally is likely due in part to market markers buying stocks to hedge their exposure to the option writing, an event known as a “gamma squeeze,” analysts said.

“People have learned what tactics work in these crazy circumstances. They use a very similar manual,” Sosnick said.

Call options that would pay off if the shares exceeded $ 40 on June 18 represented the largest block of open contracts on AMC, with around 215,000 open contracts.

Market makers who sold these and other bullish contracts were left with no choice but to buy AMC shares to hedge their own risk, exaggerating the recovery, analysts said.

An AMC theater is pictured amid the coronavirus disease (COVID-19) pandemic in the Manhattan neighborhood of New York City, New York, United States on January 27, 2021. REUTERS / Carlo Allegri / File Photo

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“Market makers are just chasing the stock,” said Matt Amberson, director of options analysis firm ORATS.

With shares of AMC trading at around $ 58, short sellers stand to lose $ 1.8 billion today, financial analysis firm Ortex said in a tweet.

AMC shares surged a day after hedge fund Mudrick Capital Management LP sold a $ 230 million stake in the company for a profit shortly after its acquisition, claiming the stock was overvalued, according to a report. source.

Investors didn’t seem fazed by the sell-off, which some analysts said was an attempt to cash in on the rally driven by retail.

“There is retail fanaticism with this stock right now,” said Eric Handler, analyst at MKM Partners, who has a sell rating and a price target of $ 1 for AMC stock. “There is such a disconnect between what the action does and what the fundamentals look like.”

On Twitter and WallStreetBets, some users urged to keep AMC shares while others applauded the rally.

“$ amc back to $ 100 and beyond,” Twitter user @ Rodolf30592158 wrote.

AMC was the most traded name in options on Wednesday, with 3.5 million contracts changing hands. About $ 30 billion of AMC shares had been traded by noon, by far the most shares on Wall Street, according to data from Refinitiv.

“It’s a frantic volume,” said Brian Overby, analyst at Ally Invest.

AMC was among the biggest winners in a deluge of interest in so-called memes stocks, fueled in part by a new generation of small social media-centric traders. The shares were trading at just over $ 2 at the end of last year.

“The (retail) part could go on as long as investors can continue to co-act,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “The problem is, the higher the price goes, the greater the temptation to take a profit and walk away.”

Our Standards: Thomson Reuters Trust Principles.

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