Community, some of you have been reaching out to me via Discord and Twitter regarding this topic. If you too have been wondering how AMC Entertainment stock continues to be shorted, well this is going to answer that for you.
Hedge funds have found a loophole that allows them to short bonds. They’re able to convert these bonds into stock but more on that later.
However, Adam Aron is fighting back. He’s issuing an S-3 filing that could potentially put a stop to this dirty trick in the book. Or so we thought.
New information has been confirmed that AMC has no outstanding bonds since Silverlake cashed in. However, I’m going to leave this article where it is because there’s a lot of great information regarding ‘terms’ and ‘definitions’. Some excerpts have been deleted to protect the community from spreading misinformation.
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What are convertible bonds?
Convertible bonds are corporate bonds that can be exchanged for common stock in the issuing company. The holder of these bonds has the option to exchange them for a predetermined number of shares in the issuing company.
What is an S-3 filing?
An S-3 filing is simply a regulatory filing through the Securities Exchange Commission (SEC) that provides simplified reporting for issuers of a registered security.
What is a convertible hedge?
A convertible hedge is a tactic where short sellers take a long position in a company’s convertible bonds, and a simultaneous short position in these bonds.
According to Investopedia, convertible hedges offset the stocks price movement when the conversion amount of the stock is shorted.
This ladies and gentlemen is how hedge funds have been able to continuously short stock in the past behind closed doors.
Knowing these facts shouldn’t necessarily hype you up for AMC per say. It should however increase your knowledge database. The more you know, the more you’ll be ready.
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