• NVDA
    311.79 USD -0.28%
  • META
    248.34 USD 1.09%
  • BRKA
    501198.61 USD -1.19%
  • T
    16.38 USD 0.43%
  • ADBE
    372.09 USD 0.22%
  • TSLA
    188.89 USD 4.85%
  • MMM
    101.72 USD 2.71%
  • SP500
    4193.05 USD 0.02%
  • MSFT
    321.21 USD 0.89%
  • AMZN
    115.02 USD -1.07%
  • AAPL
    174.22 USD -0.55%
  • NFLX
    363.05 USD -0.64%

AMC – the MEME opportunity once again

We can say that the meme "investors and traders" agreed on the Reddit again and, together with some other speculators, had significantly long options or classic positions open.

The goal was to bring the action to the highest possible level and then sell. It should not be forgotten that they have also tried to shoot GME and AMC in the past. In part, they succeeded. Subsequently, GME, AMC, KOSS, BB, and other stocks, after record and rapid growth, deducted tens of percent (some up to -80%).

There is no doubt that the short squeeze took place through yesterday and the Gamma squeeze. However, this massive, fundamentally unwarranted growth reaches a significant extreme, to speak of our analytical view. Please note in advance that this is under no circumstances an investment recommendation. Still, this article only expresses our analytical perspective and serves a purely analytical and informational purpose.

Let's take it to step by step

AMC has been reaching extremes worthy of a short position for a few days now. Please note in advance that this is too great a risk and therefore, under no circumstances do we recommend opening significantly short positions. What point could be extreme if we cannot determine the top or compare it with history? In our opinion, the top could be found if we look at the event from the perspective of market capitalization. At the same time, we will look at the top during the winter of 2021 at GME events. We can expect the top to be reached similar levels or slightly higher. The chart below shows GME (blue) and AMC (orange) and comparable data on market capitalization. We can confirm that AMC's market capitalization exceeded GME in January. This is logical, as greed is getting more significant on the market. From this point of view, we would believe that this may be the peak. Even if we cannot guarantee it in any way, it is only our assumption.

AMC and GME market CAP Source: Tradingview

A perfect solution would be if AMC used this speculative growth for issuance, resp. Sale of shares to obtain the highest possible amount of money. They did so according to our assumption. Thus, the market will partially pay the company's "operating costs" and managers' fees and use the high liquidity to its advantage. We are not even surprised, from their point of view, we would probably do the same, for the good of the company.

According to the full 8-K : "*On June 3, 2021, AMC Entertainment Holdings, Inc. (the "Company") entered into an equity distribution agreement (the "Equity Distribution Agreement") with B. Riley Securities, Inc. and Citigroup Global Markets Inc. as sales agents (each, a "Sales Agent" and collectively, the "Sales Agents"), to sell up to 11,550,000 shares of Class A common stock, par value $0.01 per share, of the Company (the "Common Stock"), from time to time, through an "at-the-market" offering program (the "Offering"). *"

AMC stock offering Source: ZH

However, a very funny moment is that the Company second time raised the capital by selling shares. In the above graph, we can see the sequence. At 99%, such reports represent a very negative situation for investors, and stocks are going down. This is still happening today, but it is questionable how they will develop tomorrow or the day after tomorrow. In our opinion, there was not much room for growth, as AMC reached more than $ 33 billion (which was the maximum) in terms of market cap. However, it is fundamentally entirely out of these valuations. The short-term momentum is still powerful, but it is likely that if stocks continue to rise sharply, management can try and take a similar step. From this point of view, it is much riskier to be in a long position than in a short one. Of course, poorly managed risk management would probably lead to losses on both sides...

Our analytical point of view

A solid solution would be to open put spreads on options, as there is limited risk. However, it must be said that they do not currently pay off at all because the values of all options, mainly OTM and ATM, but also ITM, are significantly high. From this point of view, one might say that "go short call." We do not recommend this under any circumstances, even if it is an attractive solution. In this way, several funds were detonated because the risk was not covered, respectively, was unlimited, and especially at these meme events, we don't know where the top will be. However, we assume that we will see a significant price drop within about 0-4 weeks. Probably the best and safest alternative would be to think about diagonal put spreads.

WALFIR Technologies is one of the three divisions of WALFIR s.r.o., which is based in Slovakia. The primary interests of this division are analytical, quantitative, and algorithmic...


Comments are closed.