“As the broader stock market has been on a tear for about a month, things are looking grim for investors with big short positions in stocks like AMC Entertainment Holdings Inc. and GameStop.”
AMC’s and GME’s short interest data is what ignited the massive rallies in 2021.
Today, both AMC and GME have a high short interest of 26.69% (AMC) and 20.73% (GME).
AMC’s short interest was only 25% when it surged to its all-time high of $72 per share in June of 2021.
Short interest dropped to 14% as short sellers closed positions only to pick right back up throughout 2022 and 2023.
Both AMC and GameStop shares have been suppressed from rising through heavy dark pool trading and suspiciously through naked short selling, evident in high FTDs (fails-to-deliver).
Two years later and GameStop is finally a profitable company.
AMC Entertainment, the largest movie theatre chain in the world, continues to innovate and creatively raise cash with a mission to erase its debt accumulated during the pandemic.
Hedge Funds Face Big Risks
Ihor Dusaniwsky, head of predictive analytics at financial technology and analytics firm S3 Partners, compiled a list of those most vulnerable stocks, headed by such names as AMC (AMC), GameStop Inc. (GME), Coinbase Global Inc. (COIN) and CarMax Inc. (KMX).
“One factor that is also killing profits for short sellers is the borrowing costs on stocks that no one is willing to part with, and the stock that figures highest on that list is AMC.”
AMC’s cost to borrow recently skyrocketed to more than 1,000% with its cost to borrow average currently being reported at 928%.
“Short sellers want to short the stock, but they are not able to get a stock borrow locate and therefore cannot execute their short on the street,” Dusaniwsky told MarketWatch in an interview.
“But, when any stock borrows become available — lenders, brokers know they can charge inflated fees as there is huge demand for the name.”
“In this case there is an AMC–[preferred stock] APE arbitrage trade that will be profitable if the conversion occurs soon because the high financing costs are eating into those expected profits every day, including weekends,” Dusaniwsky said.
But the S3 analyst isn’t the only one stating there is big squeeze potential in AMC and GameStop.
Strategist Says Mother of All Short Squeezes is Here
Interactive Brokers Chief Strategist Steve Sosnick says there’s big demand to short AMC Entertainment 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.
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