AMC’s Cost to Borrow Is on The Rise Quick
AMC’s cost to borrow (CTB) is on the rise quick as it begins to near 400%.
Ortex is reporting on Monday AMC’s live CTB max at 391.85%.
In the past, we’ve seen how important this data has been regarding major price runup.
Not only does a high cost to borrow incentivize short sellers to close their positions, but it gets AMC one step closer to a short squeeze.
Today, Ortex reports AMC’s short score at 94.
The cost to borrow is the average annualized percent (%) of interest on loans hedge funds have to pay.
AMC’s short interest has also been steadily rising as more shorts begin to pile in on the company stock.
However, this puts short sellers at a risk as we’ve seen in 2021 during the ‘meme stock’ frenzy.
Heavy buying pressure from both institutions and retail investors at any moment may trigger large price movement, setting panic for short sellers.
According to S3 Partners data, AMC short sellers paid $1.91 billion in fees during the first quarter of 2023.
In March, AMC stock was ranked the #1 stock with the highest borrow fee rate after reaching a whopping 1,000% cost to borrow rate.
“High stock borrow fees can test the conviction level of short sellers as financing costs can take a large bite out of expected Alpha,” S3 analyst Ihor Dusaniwsky said.
But AMC Entertainment is currently up more than +2% this year-to-date and has been up more than +40% for the most part of 2023.
Read: High Box Office Numbers Indicates Big Growth for AMC
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New Report Shows Short Sellers Have Lost $120 Billion
A new report shows short sellers have lost $120 billion from this year’s rally as the S&P 500 has climbed to a 14-week high.
Short sellers have incurred roughly $120 billion in mark-to-market losses this year, including $72 billion in the first half of June, according to S3 Partners.
The analyst also states that short interest in the U.S. market topped $1 trillion this month, hitting the highest level since April 2022.
“There are still many investors and hedge funds who think that this rally is ready for a pullback,” said Ihor Dusaniwsky, managing director of predictive analytics at S3.
“Or at least that several of the highflying stocks will lose steam and revert back to the mean.”
Hedge funds that are adding leverage after coming into the year positioned defensively have also increased their short positions; in other words, there’s strong indication of overleveraging.
“Hedge funds are increasing their market exposure, adding to both their long and short holdings, looking to play catch-up after missing some of the early year rally,” said Dusaniwsky.
Some of the highest short interest retail favorites include AMC Entertainment (NYSE:AMC) stock at 24.07%, Mullen Automotive (NASDAQ:MULN) at 20.25%, and GameStop (NYSE:GME) at 20.55%.
“Investors have been cautiously positioned really since last summer, in anticipation of this recession that has yet to materialize,” said Jason Draho, head of asset allocation Americas at UBS Global Wealth Management.
“The more the market goes up, the more I think those who are on the sidelines have to figure out how to get back in.”
Read: Special Master Recommends Denying AMC Objections in New Lawsuit
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