2021 is shaping up to be the year of the meme stock. Retail investors banded together by social media platforms like Reddit’s Wall Street Bets, Stocktwits, and iHub have created some of the most amazing spectacles the stock market has ever seen.
Movie theater chain AMC Entertainment (NYSE: AMC) is making a strong case for Best Picture of the Year. Gamestop may say otherwise, but after the events of this week, AMC stock has certainly tightened the race.
Before we attempt to break down the madness that is AMC stock, know that here at Insider Financial we are always looking out for the next big short squeeze.
In November 2020 we alerted subscribers to TSNP which later became HMBL. You can read about that here. Subscribers that acted on our bullish opinion of the mobile payments startup enjoyed a stunning run from $0.27 to nearly $8.00.
Back to AMC stock, we clued our subscribers of the pending short squeeze well before the big gains were made. You can find that here.
AMC closed at $19.56 on the day of our May 26th story. Four sessions later it ran as high as $72.62.
January 2021: The Previews
The pandemic had crossed over into the new year. With the winter months setting in, people were experiencing cabin fever like never before. The pent-up energy had to be released somehow.
In the case of homebound online investors, it was by launching a short-seller attack on a handful of stocks that were deemed worthless by Wall Street analysts.
AMC’s well-documented financial struggles and high short interest made it an ideal candidate. With the Gamestop short squeeze well underway, Reddit’s Wall Street Bets army turned its attention to AMC. By late January the troops were amassed for the next short squeeze battle.
On January 27th, the group’s coordinated barrage of buy orders drove up the AMC stock price in quick order. This forced AMC short-sellers, those that were betting the stock would decline, to close out their positions by buying AMC stock. As Wall Street Bets traders had hoped, the short-covering frenzy accelerated AMC’s sudden ascent. When the dust settled, AMC was up over 300% on the day.
In the days that followed, social media investors weren’t convinced the battle was over. On iHub, many speculated that a significant number of short positions were still not covered. We would eventually learn that they were right.
AMC heated up again in late February after New York Governor Andrew Cuomo said movie theaters could reopen at limited capacity in a couple of weeks. We covered that story in an article that can be found here.
We kept our eyes on AMC from there, waiting for signs of a second short squeeze.
May 2021: The Main Attraction
A few months later, the rumblings began.
Like a lion wading in the tall grass for an opportunity to pounce on its prey, social media investors were plotting their next big short-seller attack.
Yet the discussion was far from secretive. From Wall Street Bets to Stocktwits to iHub, AMC stock was again the subject of thousands of comments. The “squeeze the shorts” mantra was back in style. On iHub, the number of AMC-related posts sprinted back the 40,000 mark and board participation climbed.
By May 26th, our ears were ringing. AMC had just lost its only sell-side buy rating and short interest was high. The stage was set for an epic short squeeze. We promptly sent the memo to Insider Financial subscribers that warning shots had been fired. You can read about that here.
Soon thereafter, the squeeze was in full effect. Within four days, AMC stock ran 261%. Putting the return in perspective, on average, that’s roughly 25-times what the S&P 500 index has historically returned for an entire year.
The Gamma Squeeze: Not Your Gammy’s Short Squeeze
Sometimes the sequel is better than the original. That was certainly the case with AMC stock.
The late May/early June AMC short squeeze became an instant classic. Amid celebratory chants of “squeeze the shorts”, social media investors were relishing in their latest coup. Market pundits and curious bystanders were scratching their heads trying to make sense of it all.
Here at Insider Financial, we were busy trying to gather more insight for our subscribers. That update can be found here.
A term that grew very popular during the AMC ruckus was “Gamma Squeeze”.
It calls to mind your beloved grandmother trying to get the most out of the ketchup bottle, but it turns out to be a much more powerful force.
A gamma squeeze is an extreme version of a short squeeze. It is characterized by extraordinary buying activity that sends a stock’s price to move sharply higher. At the same time, short-dated call options are getting bought up in similarly immense volume. As the bulls scramble to get their hands on any form of long exposure they can, the multifaceted buying pressure creates a multiplying effect referred to as ‘gamma’. Gamma is one of the Greek terms used in the options market to measure how sensitive an option security is to movements in the underlying stock price.
The gamma squeeze was very much in play with AMC stock. Investors were simultaneously buying AMC stock and short-dated AMC stock call options in heavy volumes. Meanwhile, AMC stock short-sellers and AMC call option sellers caught on the wrong side of the massive wave were covering their short positions by taking the opposite position of their original investment. Together the two forces created an insurmountable tide of buying pressure that drove the price of AMC stock to ridiculous levels.
Selling AMC Stock While the Iron’s Hot
Since social media investors have turned into lead actors in the AMC drama, AMC management has had to balance its capital raising needs with keeping its newfound groupies happy.
In the process, the movie and popcorn outfit has shown no shame in capitalizing on its artificially flavored share price.
We saw this during the January squeeze. With its share price surging to its highest level since 2018, AMC wrapped up a 63.3 million equity raising campaign. The dilution initially sparked a backlash from investors but the company would soon be forgiven.
At the height of the latest squeeze, AMC raised another $230.5 million in a deal with Mudrick Capital Management. The hedge fund manager promptly sold the newly issued shares the same day for a nice, albeit not optimal profit. This didn’t faze retail investors who kept piling into AMC stock.
Nor did the next day’s announcement of an 11.55 million share offering that was later executed at an average price of $50.85. The AMC box office raked in $587.4 million this time around. It was appropriately an “at-the-market”, or ‘ATM’ transaction. Amid the crazy trading activity, AMC has been able to tap into the equity market at will to get cash—and has been a virtual ATM cash dispenser for investors.
AMC slid further from its peak in Thursday’s after-hours trading after the company said it would ask shareholders for the thumbs up to issue 25 million shares effective next year. The proposal was drastically lower than its previous request to authorize 500 million new shares. On April 27th, AMC withdrew a 500 million share proposal saying “many of our shareholders are telling us to wait”.
With over 500 million shares now outstanding, doubling the equity interest in the company could send many retail moviegoers heading for the exits. Based on where they’ve taken the stock, this is one shareholder base you don’t want to alienate.
Absent a controlling shareholder and with retail investors now holding approximately 80% of AMC stock, management is very much in tune with its loyal shareholder following. These days it appears to be as influenced by Wall Street Bets as the forum’s members themselves.
To see just how much AMC depends on its newfound investor fan club, look no further than AMC Investor Connect. This is the company’s recently announced loyalty program that is designed to form a deeper bond with retail investors through perks like private screenings, discounts, and even free popcorn.
It should be one interesting annual stockholder’s meeting on July 29th. Could that spark a third run? We’ll have our popcorn ready.
The Coming Attractions
It’s too soon to tell if the AMC stock bonanza is over. As the old investment adage goes, you never want to be one of the last to leave the party.
But with AMC stock up 2,400% since January 1st (and 3,325% at the peak), it’s fair to say that easy money has been made.
This highlights the importance of getting in before the short squeeze gets going.
At Insider Financial we monitor the social media chatter to find the next Gamestop or AMC before the crowd piles in. This has led our subscribers to some amazing gains such as those enjoyed in HMBL and AMC.
First, it was Gamestop and then it was AMC stock that went on unprecedented short squeeze runs. This is likely not the end of the story. That is why we are always on the lookout for the next big squeeze.
The OTC market is a great place to find short-squeeze candidates. Here you’ll find a diverse mix of low-priced penny stocks some of which have really interesting long-term growth prospects. Many also have high short interest levels. This can create the perfect scenario for a major short squeeze.
Of course, the volatile nature of OTC stocks can also mean there is the potential for significant losses. That’s why we are here. Insider Financial will help you sort through the noise and find the next big winners.
With the year not even halfway over, the ‘Great Short Squeeze Show’ has only begun. There are more opportunities out there just waiting to be discovered. Stay tuned!
WHEN INSIDER FINANCIAL HAS A STOCK ALERT, IT CAN PAY TO LISTEN. AFTER ALL, OUR FREE NEWSLETTER HAS FOUND MANY TRIPLE-DIGIT WINNERS FOR OUR SUBSCRIBERS. WE SPECIALIZE IN FINDING MOMENTUM BEFORE IT HAPPENS!
Disclosure: We have no position in any of the securities mentioned. We wrote this article ourselves and it expresses our own opinions. We are not receiving compensation for it. We have no business relationship with any company whose stock is mentioned in this article. Insider Financial is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This article is not a solicitation or recommendation to buy, sell, or hold securities. This article is meant for informational and educational purposes only and does not provide investment advice.