Are you a new retail investor? Bookmark these investing tips from Frank Nez.
Are you suffering from FOMO (fear of missing out). While we’re not financial advisors, we are certainly pro opportunity. So, which meme stock should you invest in? AMC or GME? And, is it too late to invest in either of them?
Let me walk you through the facts so you can decide which is the better buy between the two.
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Before we get started it is very important to mention that both these stocks are currently very volatile.
It is suggested that all financial decision is made based upon your own due diligence. GME stock has seen incredible gains in the past two months and analysts are determined AMC is going to have a similar run, if not bigger.
AMC & GME Short Share Volume
Here are the short share volume numbers as of June 7th, 2021.
Now, this is only Fintel so take it with a grain of salt.
Why is this important?
The number of short shares available represents the number of shares that have yet to be covered by short-investors or hedge funds.
Short-investors and hedge funds alike are betting on both AMC and GME to completely fail. This means they don’t believe AMC or GME (GameStop) can innovate as businesses to thrive in the marketplace.
The r/wallstreetbets community and millions of people would beg to differ. This is why AMC and GME have take the stock market by a storm.
What happens when shorts close/cover their positions?
Both AMC and GME are going up in share price. When short-sellers cover their positions at a higher share price than they borrowed the share, they lose money.
Because they bought a share at a higher price, the stock price continues to go up as long as retail investors hold their positions. This essentially creates a supply and demand scenario between short sellers and retail investors.
What happens if shorts keep holding and don’t cover their positions?
Short-sellers can only hold for so long. See, they eventually have to pay an interest on the shares they borrowed.
Here are the current short interest for both AMC and GME stock (June 3rd, 2021):
These change from time to time
As you can see, AMC has a bigger interest rate than GME at the moment. This means short-sellers are paying a much larger fee to short AMC stock.
This borrow rate fee increases as the demand for the stock rises.
Why is this important to the retail investor?
The borrow fee interest pressures short sellers to close their positions before they pay bigger and bigger fees for borrowing AMC and GME shares.
When a short-seller closes their position higher than they borrowed the share for, they lose money. The retail investor then continues to see a rise in share price. This ladies and gentlemen is where retail investors begin to experience a series of gamma squeezes before a short squeeze.
What’s the difference between a gamma squeeze and a short squeeze?
A gamma squeeze usually occurs when retail investors bet on the price of a stock such as AMC or GME to go up. Share price will then increase due to specified call options or contracts.
A short squeeze essentially occurs when a heavily shorted stock increases in value and short-sellers must cover their positions.
AMC and GME short squeeze
AMC
We saw a gamma squeeze from AMC when the stock price shot up to about $20 per share. This was mainly due to retail investors buying call options.
We have not seen a short squeeze from AMC just yet. This is why AMC stock is a very popular choice for people who missed out on GameStop the first run.
AMC’s share price is also significantly lower and more affordable to the average retail investor than that of GameStop. With more investors getting in on AMC, another gamma squeeze is on the horizon. If retail investors continue to hold their positions, a short squeeze is inevitable.
Read: How high can AMC stock price skyrocket up to?
GME
GME experienced its gamma squeeze right before we saw it short squeeze all the way up to $500. Its gamma squeeze consisted of perpetual gains beginning around the $20 mark all the way up to $100 before it squeezed and saw sharp gains.
After GME squeezed, it hovered around $40. We recently saw another GME gamma squeeze sending it back up to the $100 range.
GME’s mastermind, Keith Gill AKA Roarking Kitty (deepf******value), has also mentioned doubling down on GameStop investment. You can find sources everywhere online.
Read: Will GameStop see a massive short squeeze again?
More institutions are buying and holding AMC than GME stock
We’re seeing more and more institutions such as Vanguard, BlackRock, and Charles Schwab continue to add and hold to their AMC positions (via. Nasdaq). As of May 21st, the top whales continue to add to their long positions.
GME on the other hand has seen quite some selloff from institutions. Which by the way is okay. Investors are simply closing profits with the gains they’ve seen from GME via. Nasdaq.
Innovation: AMC VS GME
While it’s hard to see how GME can innovate their retail stores, AMC doesn’t seem to have that problem.
I personally believe innovation has a strong influence in the decision-making process when investing in either AMC or GME.
GameStop can continue to sell to gamers online. We won’t see much change to their retail stores. AMC on the other hand can innovate with virtual reality but ultimately doesn’t have to since people are going to the movie theaters again.
Related: Why is AMC stock going up again?
AMC stock is the most popular choice for new retail investors
If you’re a new retail investor looking to get into one of these stocks, AMC is more than likely your best bet.
The stock has a lot of upside potential.
- AMC stock is currently affordable
- The stock has not hit a short squeeze yet
- It is one of the most shorted stocks in the market
- The stocks market cap, volume, and short borrow fee keep increasing
GME stock is a good pick for current GME holders
If you’re currently holding GME it looks like you will continue to see volatility. You can take advantage by buying the dips and holding your positions.
If you didn’t cash out when GME peaked, there’s a probability you will get another chance if GME continues to stay in bullish territory. This of course is heavy speculation.
I want to ditch Robinhood – what other platform can I use?
If you’re looking to ditch Robinhood, we strongly suggest switching to a real broker account.
Robinhood tarnished GameStop momentum by preventing retail investors from buying more stock.
I recommend: Vanguard –> Link
I’ve also published a post on how to invest in the stock market step by step where I include a list of other platforms you can check out here.
Read: Why new retail investors investing in AMC should avoid Robinhood
So, which is the better buy? AMC or GME?
If you’re looking to get into an affordable stock that has a high potential of squeezing, then AMC will be your best bet. It’s fundamentals also determine this stock is a good long-term buy.
Although GME’s hype can still cause a potential squeeze in the future, it’s still much lower than AMC’s probability. If you have a position in GME then I recommend holding and taking any gains you can. Otherwise, keep holding if you love the company.
Whether you go for AMC or GME stock, you should always invest in a company you truly love and believe in. Think long-term for the most part. If you can make some money short-term, even more power to you.
Related: Everything you need to know about Dogecoin crypto
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