Every retail investor holding a position in AMC wants to know, when will shorts cover their positions? And I don’t blame you.
This one is a little tricky. See, it’s like saying, “when will retail investors sell their positions?”
Welcome to Franknez.com – the blog that fights for you, the retail investor. Today I want to discuss short covering.
Let’s get started!
Retail investors have been waiting patiently for AMC Entertainment stock to rip.
You’ve been holding through the ups and downs and even buying the dips.
So, why aren’t shorts covering their positions yet? What do retail investors need to do to squeeze hedge funds out of their money?
Are shorts obligated to close their positions?
Let’s start with the fundamental question. Are shorts obligated to close their positions?
Now, there are currently no rules regarding how long a short can hold before closing out their position.
However, lenders do have the right to demand the seller closes their position with minimal notice.
This is rare and only occurs if the the seller isn’t paying the interest fee, or the interest fee is ridiculously high.
“A short position may be maintained as long as the investor is able to honor the margin requirements and pay the required interest and the broker lending the shares allows them to be borrowed.” – Investopedia
When an interest fee is extremely high, it makes a stock difficult to borrow which obligates the short seller to close their positions.
AMC’s short borrow fee rate as of 1/24 is: 0.70% according to Stonk-O-Tracker.
Keep an eye on this interest as it will determine just how much shorts are bleeding.
Hedge funds currently shorting the stock are losing money every day. And regrettably for them it’s getting worse the longer they hold.
Why does the short borrow fee matter?
The short borrow fee is an interest that shorts must pay for borrowing AMC shares.
And although the fee has gone down, shorts are still paying a price for going long.
They will hold in hopes to drive AMC’s share price right back down to the floor.
However, AMC is trending upwards now and has absolutely no intention of going back down.
Analysts data and AI predictions all point towards a high possibility of a short squeeze.
Even Fintel’s short squeeze score has been as high as 80-90% in recent weeks.
This short borrow fee is going to continue to go up as AMC stock becomes harder to borrow.
For short sellers, a low short borrow fee is in their favor.
They would much rather pay the fee and stubbornly continue to hold their positions against retail investors.
But, if the short borrow fee is high enough to hurt the borrower, they will be more inclined to close their positions before losing an excruciating amount of money.
The short sellers conviction is strong, even though they’ve already lost.
It’s only a matter of time before they have no other option than to forfeit.
How can retail investors help drive the short borrow fee up?
Retail investors can help drive the short borrow fee up simply by holding their positions.
When AMC squeezes, retail investors will have to continue to hold their position on the way up.
Not every short will close their positions immediately.
If we begin to see AMC’s price action rise monumentally, it is important to understand that there’s more potential because not every short seller has closed their position.
We might see AMC drop a little after it peaks.
However, if retail investors continue to hold, it’s only going to continue squeezing more shorts resulting in further perpetual gains.
Melvin Capital suffered 49% loss 1st quarter
Community, this is massive. Melvin Capital is a hedge fund that has been shorting both AMC and GME stock. These are the people trying to drive the stock to the ground.
Melvin Capital suffered a 49% loss its first quarter of 2021, via. Markets Insider.
Retail investors are hodling to the moon.
They are not waiting for $100 price action anymore, and some are certainly not waiting for $500+ share price anymore.
The Reddit community is set new standards for the AMC’s stock price.
Here’s why this matters:
- Not only are shorts losing money every day but huge hedge funds are bleeding billions of dollars due to retail investors holding
- This is a huge win for retail investors – our favorite companies have been saved
- Unless shorts close their positions, hedge funds will continue to suffer
- Interest rates will continue to skyrocket for short sellers, enabling them to close their positions sooner than later
- An AMC short squeeze might be closer than we think
Here’s what retail investors can do:
- Continue to hold your positions, it’s free
- Buy the dips to counter any short attacks
- Share articles on social platforms that can provide value to the community and keep everyone informed
- Keep a close eye on the stocks performance so you do not miss the squeeze
Hedge funds are not going to be able to recover from this.
Yes, they can possibly receive help from huge banks, but this too will be at a cost.
Furthermore, borrowing money from banks won’t change the fact that shorts still have to cover their positions.
Retail investors are buying AMC stock every day. Shorts are fighting a war they cannot win.
Important advisory: I am not a licensed financial advisory. I simply have a passion for finance and writing.
What happens when a short covers their position?
A short position will be profitable if it is covered at a lower price than the initial transaction; it is at a loss if it is covered at a higher price.
In AMC’s case, shorts who drove the price down to $5 but are still holding to-date are at a loss.
AMC is currently trading around $16 per share as of 1/24.
When there’s a ton of short covering happening in a particular stock, it will result in a short squeeze.
What is a short squeeze?
A short squeeze occurs when a stock spikes in price action due to an increase of short-sellers closing out their positions.
We’ve seen a short squeeze happen with both GameStop and Volkswagen. GME topped almost $500 while Volkswagen spiked shy below $1,000 back in 2008.
Short squeezes are massively profitable for retail investors.
These one-time phenomena are how people are able to accumulate wealth in such little time.
So, when will AMC shorts cover?
Instead of exiting, short sellers are holding. Some shorts might be waiting for a more favorable price to close their positions.
Another way shorts will be forced to close their positions in AMC is through a margin call.
This is when their accounts don’t have the sufficient funds to meet the accounts minimum amount of dollar required.
At this point they are forced to liquidate.
Now, because there’s no rule to how long they can hold their positions, they’re in the long game like most retail investors waiting on a short squeeze to happen are.
The good news is that AMC bankruptcy is no longer on the table and Wall Street analysts are even saying the industry is on a solid path to resurgence, via Hollywood Reporter.
As we continue to see a high utilization and the short borrow fee increase, we can only expect shorts will cover sooner than later.
What percent does the short borrow fee have to be?
There seems to be some sort of manipulation or loophole here. The borrow interest rate should be much higher.
Short sellers have been borrowing millions of shares to short.
It seems they thought AMC’s 500 million share dilution was going to go through.
Funny enough Adam Aron, the CEO and President of AMC Entertainment actually scrapped that idea leaving short sellers in a deeper hole.
I personally think retail investors are going to experience the short squeeze of a lifetime.
AMC’s price action will continue to go up
Journalists and analysts alike are now claiming AMC to be a big buy.
Shorts can continue to hold their loses on paper for months to come or close their positions while it’s at the current price action.
Closing now is recommended due to an overwhelming amount of attention AMC Entertainment has received.
With new titles coming to AMC movie theaters soon, we’re only going to continue to see a surge in price action due to an increase in the company’s sales revenue.
Even if shorts continue to hold, lenders will eventually run up the interest rate again and force them to cover.
If you’re a retail investor reading this article, I’m already celebrating your success.
Leave a comment below and let the community know what a short squeeze would mean for you.
AMC is on the ‘Potential Short Squeeze’ list via. Fox Business
In case you missed it, a squeeze is very possible, via FOX Business.
All the data at hand point towards the inevitable for both shorts and retail investors.
Retail investors holding AMC stock are going to experience a once in a lifetime opportunity.
A lot of you have been sharing my posts on Facebook Groups, Reddit, Discord chats, and Twitter. Words can’t explain how grateful I am for you sharing positive and valuable information for new retail investors to look at. Thank you.
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