Every retail investor holding a position in AMC wants to know, when will shorts close 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 shorts closing.
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.
And although we did see AMC’s share price surge in 2021, the short sellers are still here in 2023.
So, why aren’t shorts closing their positions yet?
What do retail investors need to do to squeeze hedge funds out of their money?
Let’s discuss it.
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.
Short sellers are burning big money to keep these positions open in 2023 though.
You’ll want to keep an eye on this interest as it will determine just how much shorts are bleeding.
I update AMC’s short interest data (and others) here daily.
Why does the “Cost to Borrow” fee matter?
The cost to borrow fee is an interest that short sellers must pay for borrowing AMC shares to short the company stock.
These fees are currently at an all-time high.
Short sellers 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.
Hedge funds 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.
How can retail investors help drive the short borrow fee up?
Retail investors have helped drive the short borrow fee up simply by holding their positions.
When AMC squeezes, not every short will close their positions immediately.
This means retail investors won’t ever be able to time the high.
There will be short sellers who will continue to short even as share prices rise.
If we begin to see AMC’s price action rise monumentally, it is important to have a plan on how to take profits.
Just like a day trade, investors may be profitable for some time until they see gains turn into losses, which usually occurs due to greed in the markets.
This is what you want to avoid.
Important advisory: I am not a licensed financial advisory. I simply have a passion for finance and writing.
What happens when a short close their position?
A short position will be profitable if it is closed at a lower price than the initial transaction; it is at a loss if it is closed at a higher price.
In AMC’s case, shorts who drove began to short around $5 but are still holding to-date are at a loss.
AMC is currently trading around $6.08 per share as of 2/2.
When there’s a ton of shorts closing (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.
Some short sellers closed in June of 2021 when AMC shares rose to $72 per share as well.
AMC’s price skyrockets to more than +3,000% that year!
Short squeezes are massively profitable for retail investors.
These phenomena are how people are able to accumulate wealth in such little time.
So, when will AMC shorts close?
Instead of exiting, short sellers have been holding.
Just as retail investors have high conviction on massive price action, hedge funds still have conviction on shorting the company to delist it.
But AMC Entertainment isn’t going bankrupt and AMC shareholders aren’t leaving.
AMC said bankruptcy was no longer on the table years ago and some Wall Street analysts have said the industry is on a solid path to resurgence, via Hollywood Reporter.
In fact, the short thesis is beginning to change with many incredible developments happening in the movie theatre industry.
As we continue to see a high utilization and the short borrow fee increase, we can only expect shorts may be incentivized to close sooner than later.
Will AMC’s price action continue to go up?
AMC stock has always had high demand from shareholders.
While many of these retail activists continue to hold losses from June’s drop, it’s possible this changes – granted that short sellers close out their positions this year.
Short sellers will have the option to hold their loses on paper for months to come (with fees) or close their position at the current share prices.
Short selling is a risky business and bulls have sent a message – “we’re not leaving”.
With new titles coming to AMC movie theaters as well as new developments, we’re only going to continue to see a surge in price action due to an increase in the company’s fundamental growth.
Even if shorts continue to hold, lenders will eventually run up the interest rate again, forcing them to throw in the towel.
Leave a comment below and let the community know what a short squeeze would mean for you.
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