A new proposal by CEO Adam Aron has been circulating the retail community where shareholders will get to vote on the conversion of APE equity to AMC common shares.
Shareholders are anticipating short sellers will close their positions in APE if the conversion to AMC common shares is approved.
While no official voting proxy has been distributed amongst shareholders, the talks are certainly on the table.
A second proposal will allow shareholders to vote on a 1-for-10 reverse stock split.
So far, more than 72% of shareholders said in a poll they’d vote ‘YES’ for the split.
You can read more about what a reverse stock split signifies for a company here.
Will shorts be forced to close their positions in APE if the conversion is approved?
There’s a very strong probability of that being the case.
Let’s discuss it.
What Happens to Shorted Stock During a Merge?
In the case of APE and AMC, the merge between the equity and common shares may temporarily increase the share price of AMC stock.
This is where short sellers are caught in a bind.
Short sellers betting against the company would see big losses during the surge of the newly reflected share price.
Short sellers will have the option to close out their positions completely prior to the conversion or keep holding their position.
While they will not be obligated to close out their positions, they are at higher risk from momentum taking over and further escalating rising share prices.
Here is where shareholders have the opportunity to buy in heavily to keep short sellers from only pushing the price down after the merge.
As short sellers begin to fear the tide turning against them, the buyback of shares will result in a short squeeze.
If shareholders fail to create momentum, then short sellers may identify weakness in buying power and further add to their short positions.
Is an APE Short Squeeze Over?
There’s a strong possibility short sellers close their positions in APE prior to a conversion (if approved by shareholders).
In doing so, they avoid seeing share prices rise and the probability of having losing positions during the merge.
APE momentarily became the #1 most short stock according to Yahoo Finance.
In the past week, APE has surged more than 150% with heavy buying volume.
Is it possible this was caused by a few shorts closing?
Perhaps, but an APE short squeeze prior the conversion is still very possible.
Despite so much market uncertainty happening today, both AMC and APE have fair shots at squeeze short sellers from their positions.
So far, this has been one of the biggest catalysts for a short squeeze.
But it’s going to require retail investors to play their part.
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