Interactive Brokers Chief Strategist Steve Sosnick says there’s big demand to short AMC Entertainment (NYSE:AMC) stock.
He says the biggest reason aside from the company’s fundamentals is its new merge with its equity (NYSE:APE).
“It’s very hard to keep the momentum in these things because economic reality does take hold.
Bed Bath & Beyond, at one point was the best performing stock on the board until reality set in and they began defaulting, averted bankruptcy, but using a deal that is so dilutive that it’s unavoidable.”
Sosnick says AMC is in a very special situation because of the proposal to merge APE with AMC common shares.
“Right now we’re seeing such a demand to short AMC partly because of its difficulties but partly because of the special situation.
This really is what they were looking for in some ways as the mother of all short squeezes.
The borrow rate, it costs you 700% to borrow the shares overnight — if you can find them,” said the Interactive Brokers Chief Strategist on Yahoo Finance.
Is AMC Entertainment stock about to squeeze this year?
Here are 5 big signs that point to a mother of all short squeezes.
#1. AMC’s Short Interest is Really High
A short squeeze requires a company to be heavily shorted, which AMC is.
AMC has a high short interest of 25%.
Did you know that before AMC’s share price surged from $14 per share to its all-time high of $72 per share it only had a short interest of 22%?
AMC’s short interest dropped from 22% to 14% as short sellers began to close their positions.
Well, I’m sorry to break it to skeptics, but AMC’s high short interest means there are shorts to squeeze.
I’d love to hear the rebuttal on this one; I don’t get the counterargument.
#2. There Are Millions of Shares on Loan
This ties back to AMC’s short interest data.
There are currently 197.10 million shares on loan, per Ortex.
These are shares that have been borrowed and not yet returned to the lender.
Hedge funds borrow these shares to short AMC stock.
At some point, these shares eventually have to be returned whether short sellers simply return them without necessarily selling them in the market, or through a ‘buy-back’ when closing their short positions.
Small spikes in AMC’s share price in correspondence with a drop in short interest suggests some short closing.
We’ve seen this on very high-volume trading days.
Now imagine all of these shares getting returned to the lender from shorts closing positions.
That’s a lot of buying power getting injected into the stock, forcing shares to spike.
Also known as a short squeeze.
#3. The Cost to Borrow AMC is Higher Than Ever
The cost to borrow is the annual fee hedge funds are paying to borrow shares to short the company stock.
AMC’s current CTB is a whopping 260%.
Hedge funds are currently paying more than $30 million monthly in fees alone.
This lucrative fee alone could incentivize short sellers to ditch this play and close their positions.
#4. AMC Entertainment Has the Community to Trigger Big Buying Pressure
This is one of the biggest catalysts for an AMC short squeeze.
Why?
Because volume is what drove share prices up during the Wall Street Bets movement in GameStop, AMC, and other heavily shorted stocks at the time.
DFV knew that buying pressure is what would trigger spikes in GameStop, causing short sellers to run for the hills.
AMC shareholders replicated it in 2021, sending shares from $6 per share to $72 per share by literally buying every dip.
Yeah, it was wild -but it worked.
And shareholders haven’t left, they are still holding in 2023.
#5. The Company Isn’t Going Bankrupt
The short thesis made sense during the height of the pandemic when movie theatres were forced to close their doors to the public.
CEO Adam Aron said AMC Entertainment went from one day making millions per day to income suddenly halting due to the lockdowns.
But AMC Entertainment is no longer going bankrupt.
The company has improved and restructured its debt every quarter since 2021 and has beat earnings expectations ever since.
While the company does carry debt, Adam Aron has proved to be a master at raising cash from thin air.
Some of his efforts have included branded merchandise, the introduction of its equity APE, and through partnerships in the entertainment industry which Disney and Netflix.
The company is expected to launch a new credit card this year and put AMC branded popcorn in retail stores.
You can read more about AMC’s development’s here.
An AMC short squeeze isn’t as far-fetched as some might think
As you can see, there are no conspiracy theories or “what if’s”.
I’ve been documenting AMC’s short squeeze since 2021, shortly after shares rose to $22 per share and came back down in late January.
I witnessed months of momentum build until shares jumped to $72 per share.
And yes, it can be replicated.
Related: Will AMC Stock Squeeze in 2023?
Latest Naked Shorting News
Credit Suisse (NYSE:CS) clients have withdrawn billions of dollars.
In November, the bank warned investors in a 6-K filing of potential losses due to naked short covering.
Disarming these types of overleveraged positions won’t be easy.
Credit Suisse took a massive hit of $4.09 billion in Q3 and hinted at occurring losses in an upturn in markets.
Now Credit Suisse as postponed publication of its annual report, per Reuters — more on that below.
The bank hired 20 banks for a $4 billion injection in effort to pivot from Q3’s disaster.
Is Credit Suisse on the verge of collapsing?
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Thanks Frank for always writing factual content. I’m voting yes.
This is yet another reason why Adam Aron does not need to dilute AMC shares. Vote NO.
The Interactive Brokers strategist says AMC is a different situation. Do you think this is why the company is being slowed down from converting APE into AMC?
Certainly the xxx% interest rate is a drug some are hooked on so want to stall the conversion so they can continue getting their high for longer.