AMC Entertainment falls 14% as increasing short bets test a key technical support level

AMC Entertainment
  • AMC Entertainment fell as much as 14% on Wednesday as the meme-stock frenzy begins to cool down.
  • The stock is testing a key support level at its 50-day moving average in Wednesday trades.
  • Short bets against the movie theater chain increased 6% over the past week, according to S3 Partners.
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Shares of AMC Entertainment dropped as much as 14% on Wednesday as retail traders begin to capitulate on the meme-stock frenzy and short bets against the theater chain increase.

The stock tested a key support level on Wednesday, as it traded around its 50-day moving average at $37.28. At time of publication, AMC was trading below the key support level at $35.27.

Moving averages are a lagging trend-following indicator that technical analysts use to smooth out price movements and help identify the direction of the current trend in place.

Traders view the the 50-day moving average, which is the average daily closing price of a stock over its previous 50 trading sessions, as a short-term moving average that often represents areas of support or resistance for a stock.

If AMC manages to decisively hold the 50-day moving average as support, then a rise back to its June peak of about $70 could be in order.

But a single trading day above its 50-day moving average is no sure-signal that AMC stock will continue to trend higher, as declining momentum indicators like the Relative Strength Index suggest fewer buyers are stepping in to support the stock than in previous weeks and months.

Another moving average traders will likely have their eye on if AMC falls below its 50-day is the longer-term 200-day moving average. The rising 200-day average is currently near the $14 level, representing potential downside of 60% from current levels.

But a stock’s decline below its 50-day moving average does not mean a swift decline back to its 200-day moving average is in order. One sign traders look for to generate a buy or sell signal is the crossover between the shorter 50-day and longer 200-day moving averages.

A buy signal is flashed when the short-term moving average crosses above the longer-term moving average, as happened for AMC in February. Using this method, a sell signal for AMC would not be generated unless the 200-day moving average crossed above the 50-day moving average.

As AMC tests its key 50-day moving average support level, short bets against the company are increasing, according to data from S3 partners. Over the past week, short bets increased 6% to 5 million shares, worth nearly $200 million.

While AMC short-sellers are down more than $3 billion in 2021 on a mark-to-market basis, that could soon reverse if AMC breaks below its 50-day moving average and trends towards its 200-day moving average.

Technical analysis chart of AMC
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‘Big Short’ investor Michael Burry compared the meme-stock craze to the dot-com and housing bubbles – and warned of an impending crash

Michael Burry Getty
Michael Burry.

  • Michael Burry said the meme-stock craze reminded him of the dot-com and housing bubbles.
  • “The Big Short” investor predicted the buying frenzy would end in a brutal crash.
  • Burry also explained why becoming a meme stock can be a huge boon for a company.
  • See more stories on Insider’s business page.

Michael Burry warned the frenzied buying of meme stocks reminded him of the dot-com boom and housing bubble in a recent Barron’s interview, and predicted the social-media favorites would plummet in value soon.

The Scion Asset Management chief noted the people who went all-in on technology stocks at the turn of century, and those who took out massive loans to buy multiple homes in the mid-2000s, didn’t expect the good times to end. Meme-stock investors are falling into the same trap and risk getting burned, he said.

“We probably do not have to wait too long, as I believe the retail crowd is fully invested in this theme, and Wall Street has jumped on the coattails,” Burry told Barron’s in an email. “We’re running out of new money available to jump on the bandwagon.”

Burry is best known for his billion-dollar bet against the housing bubble in the mid-2000s, which was immortalized in the book and the movie “The Big Short.” He also took a stake in GameStop in 2019 and underscored the video-game retailer’s potential in letters to its board, emboldening retail investors to execute a short squeeze of the meme stock at the start of this year.

The Scion chief told Barron’s that Wall Street professionals are now tracking social-media chatter and cashing in on the latest meme stocks.

“They are in a better position than retail to participate, sniff out and start gamma squeezes in the options market,” he said. A “gamma squeeze” refers to buying call options on a stock to force market makers to purchase the underlying shares to hedge themselves, which in turn pushing the stock price up even more.

Burry, who has been warning of an historic market crash for months, also trumpeted the success of his GameStop wager. While he exited the position before the stock skyrocketed in January, he still turned a sizeable profit. “If I get within years of a thesis coming true, I’m happy,” he said.

Finally, the investor emphasized that for an ailing business like GameStop or AMC Entertainment, being picked as a meme stock is like hitting the jackpot. They can issue shares at inflated prices to rake in huge sums, allowing them to pay off their debts, invest in their operations, and revitalize their prospects.

“This is a Godsend for these companies,” Burry told Barron’s. Indeed, GameStop went from spending nearly $200 million to repurchase 37% of its outstanding shares in 2019, to raising over $1.6 billion from share sales in the first six months of this year.

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Chinese ride-hailing company Didi became a retail favorite on its first day of trading

didi dirver
Reuters/Jason Lee

  • Didi has become a retail-investor favorite on its first day of trading, Fidelity data show.
  • The stock topped retail buys in Exela Technologies and AMC Entertainment.
  • Shares of the Chinese ride-hailing company surged as much as 28% during its IPO Wednesday.
  • See more stories on Insider’s business page.

Chinese ride-hailing company Didi has already become a retail-trader favorite in its first day on the public markets, Bloomberg first reported.

According to data from Fidelity, Didi shares ranked number one among retail traders Wednesday, while Exela Technologies, which has seen heightened interest from Reddit investors this week, was second, and well-known meme-stock AMC Entertainment was third.

Didi had more than 32,000 buy orders as of 3:15 p.m. in New York, compared to Exela and AMC, which each had about a third of that, the data showed.

Didi’s debut is the second largest among Chinese companies, after e-commerce giant Alibaba’s initial public offering in 2014. The shares soared as much as 28% in their first day of trading, giving Didi an approximate $86 billion valuation, Markets Insider reported.

The valuation makes Didi the second largest ride-hailing app in the world after Uber, which is valued at $93 billion.

Rumors about a potential IPO spread for several years before the company eventually filed its prospectus earlier this month, Fortune reported. Among Didi’s largest shareholders are investment firm SoftBank, which has a 21.5% stake, Uber, which has a 12.8% stake, and Tencent, which has a 6.8% stake, Fortune said.

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AMC jumps 10% as the Reddit favorite reports the most customers in a weekend since reopening

Vin Diesel driving a car in "Fast and Furious 9."
Vin Diesel in “Fast and Furious 9.”

  • AMC Entertainment jumped as much as 10% on Monday after it reported strong traffic at its theaters over the weekend.
  • The company said more than 2 million customers visited its movie theaters over the weekend.
  • The new ‘Fast and Furious’ movie installment helped drive a post-pandemic box office record.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Meme stock and Reddit favorite AMC Entertainment soared on Monday, surging as much as 10% following a strong weekend at the movies.

Driven by hot weather and the opening of “Fast and Furious 9,” AMC saw more than 2 million guests visit its theaters over the weekend, representing a post-pandemic record for the company.

“Fast and Furious 9” also broke records, with the movie generating $70 million in ticket sales over the weekend. That’s the biggest opening weekend for a movie since 2019’s Star Wars: The Rise of Skywalker.

According to AMC, six of its movie theater locations represented the top 10 busiest theaters in the US. And an additional 500,000 people visited AMC’s international locations over the weekend, according to the company.

“The combination of widespread vaccination and the release once again of blockbuster movies is proving to be the magic formula for the return of moviegoing,” AMC CEO Adam Aron said.

Shares of AMC are up more than 2,600% year-to-date and have cost short-sellers billions in losses.

Despite the near-record stock price and an improving outlook for movie ticket sales, some investors remain unconvinced that AMC is worth its current market valuation of nearly $30 billion. Short interest as a percentage of AMC’s entire share float still stands at just below 20%, according to data from ShortSqueeze.

AMC Entertainment stock chart
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Bank of America resumes coverage of Bed Bath & Beyond, says stock is trading on fundamentals again as meme-stock madness fades

Bed Bath & Beyond
  • Bank of America analysts resumed coverage of Bed Bath & Beyond after meme mania cooled down.
  • “The momentum from meme investing has likely passed,” said the analysts who briefly paused coverage.
  • BofA rated the stock as a buy with a $38 price target.
  • See more stories on Insider’s business page.

Bank of America analysts say meme mania for Bed Bath & Beyond has cooled off, prompting them to resume covering the stock for investors.

In a Thursday note, Bank of America analysts led by Curtis Nagle said Bed Bath & Beyond shares are “once again trading on fundamentals,” and rated the stock to a buy rating. The analysts stopped coverage of the company on June 3 after the price surged 62% in a single day amid hype from retail traders.

The Union, New Jersey-based home goods retailer became a meme stock in January, along with companies like AMC Entertainment and BlackBerry, after retail traders poured into shares of GameStop to cause a short squeeze. Then in June, retail traders again hyped up shares of Bed Bath & Beyond as other meme stocks also came back into the spotlight.

“While not quite as extreme as GameStop, for example, Bed Bath & Beyond did see a large increase in mentions on retail investor forums in January and late May through early June,” the analysts said. But, “over the past two weeks, Bed Bath & Beyond has seen a sharp reduction in both those factors, which suggests that the momentum from meme investing has likely passed.”

Since the craze earlier this month, shares are trading closer to pre-surge levels, and the social-media hype, trading volumes, and short interest, have all moderated, the analysts said. With that, they added a $38 price target for the stock, which traded at $29.89 at at 11:26 p.m. in New York.

The analysts attributed their bullish view to Bed Bath & Beyond’s long-term turnaround, including the company’s largest-ever new product rollout by year-end, store resets that will improve the shopping experience, closures of 200 underperforming locations, and a pickup in back-to-college and wedding registry purchases as the economy re-opens.

Read more: Bank of America says to buy these 31 small- and mid-cap stocks with average implied upside of nearly 30% as they represent its best ideas for the second half of 2021

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A majority of Millennial and Gen-Z investors are taking personal loans or borrowing from friends and family to invest in stocks

Happy Stock Market Investor
Caroline Purser/Getty Images

  • A majority of Millennial and Gen-Z investors are borrowing money to invest in stocks.
  • Most took out a personal loan or turned to family and friends, a new survey shows.
  • Borrowing puts investors into “risky territory” said Magnify Money, which conducted the research.
  • See more stories on Insider’s business page.

Millennial and Gen-Z investors in the US are borrowing money to invest in stocks, a survey from LendingTree’s Magnify Money shows.

80% of Gen-Z investors and 60% of Millennials surveyed said they took on debt to invest. The survey gathered responses from about 2,000 US consumers from March 30 to April 6. Of those surveyed, about half were investors.

Young investors were most likely to take out a personal loan – oftentimes borrowing $5,000 or more – to invest and turned to family and friends for funds second, the data showed.

Older generations were much less likely to take on debt, with only 28% of Gen Xers and 9% of Baby Boomers borrowing in order to invest, the survey showed. Of those who borrowed money, more than half said they’d do it again.

Ismat Mangla, MagnifyMoney senior director of content, said borrowing puts investors into “risky territory,” and they need to determine if they can afford to take that risk.

“You want to be confident that your investment gains will exceed the costs of your loan. If they don’t, you should be confident that you could take that financial hit,” she said.

Millennials and Gen Zs have joined the market in droves since the COVID-19 pandemic began, and many have used social media sites like TikTok, which can be sometimes be a source of questionable advice, to educate themselves on investing. Data from Vanda Research shows retail traders purchased an additional $400 billion in stocks since January 2020, doubling their total purchases from the year prior.

Many of the young investors have poured into the new phenomenon of meme stocks – a trend that started earlier this year when retail traders coordinating on social media caused shares of GameStop to skyrocket. Since then, companies, including AMC Entertainment and BlackBerry among others, have seen sky-high prices largely thanks to the retail trade.

Wall Street analysts have said meme-stock prices are disconnected from reality, making them a riskier bet and nearly equivalent to gambling. And meme-stock companies have even begun to warn retail traders that they could lose all their investment making risky bets on stock prices trading above fundamentals.

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Retail investors are on track to plow $400 billion into stocks in 2021 with the day-trading boom still in its early innings, Goldman Sachs says

Reddit Wall Street Bets Retail Trading GameStop
  • Retail traders are set to pour a net $400 billion into the equity market this year, Goldman Sachs said.
  • That’s a hike from the analysts’ previous estimate of $350 billion.
  • Goldman’s basket of retail favorites has outperformed the S&P 500 by 3 percentage points.
  • See more stories on Insider’s business page.

Retail traders responsible for driving record rallies in meme stocks like GameStop and AMC Entertainment are on track to pour a net $400 billion into equities this year, Goldman Sachs analysts said.

In the Friday note, the analysts, led by David Kostin, raised their estimate for full-year household net equity buying forecast to $400 billion from $350 billion in light of “high cash balances and continued retail participation.”

Last year, households poured $367 billion into equities, while in 2018 and 2019, they were net negative on the asset class, the Goldman Sachs data showed.

“The retail bid is back,” the analysts wrote, noting that in the first quarter alone, households were the largest source of equity purchases, netting $172 billion.

The “renewed strength in retail activity” has pushed Goldman’s basket of “retail favorites” to top the S&P 500’s performance by 3 percentage points this month. Meanwhile, stocks with active retail trading activity have also outperformed the broad market.

Retail traders came into the spotlight earlier this year when they caused a massive rally in shares of video-game retailer GameStop. The rally spread to other stocks, too, including BlackBerry and AMC Entertainment. Since then, the term “meme stocks” has entered Wall Street’s vocabulary, as retail traders, mobilized on social media sites like Reddit and Twitter, continue to rally behind various companies.

In May, retail traders renewed their interest in the new class of stocks as they drove up shares of movie-theater chain AMC Entertainment. Other meme-stock classics also rallied, as retail traders added new stocks to the basket as well.

Retail traders will likely continue to favor stock markets, thanks to “anemic” money market and credit yields, Goldman Sachs said. Plus, a continued increase in inflation would make equities more favorable than bonds or cash.

Currently, households allocate 44% of their assets to equities, the analysts said. That nearly matches the 46% all-time high allocation from 2000, just before the dot-com bubble burst.

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GameStop is headed for inclusion in a large-cap stock index after its dizzying surge to record heights – but AMC will miss out with its spike coming after the deadline

gamestop store
John Minchillo/AP

  • GameStop could be listed alongside Amazon and Microsoft if included on the Russell 1000 Index.
  • AMC missed the May 7 cutoff to reach a capitalization higher than $7.3 billion.
  • The stocks have ballooned to the largest on the Russell 2000 Index thanks to retail traders.
  • See more stories on Insider’s business page.

GameStop could be one of the newest stocks on a list of the 1,000 largest companies thanks to the army of retail traders that have pushed the share price to dizzying highs.

But AMC Entertainment might have just missed the cutoff.

To be included in the Russell 1,000 Index – a group of the largest US stocks – a company should be worth at least $5.2 billion by May 7, according to a chart from FTSE Russell, which creates the indexes.

That puts retail-trader icon GameStop, which was worth about $12 billion as of the market close on May 7, in the running to be included. Being added to the index means GameStop would stand alongside behemoths like Apple, Microsoft, and Amazon.

But movie-theater chain AMC Entertainment, which led the lastest round of meme-stock mania over the last few weeks, missed the deadline to be included. The company was worth $4.3 billion as of the May 7 market-close. A couple weeks later, retail traders – mobilized on social media investing platforms like Reddit’s Wall Street Bets – forced a record rally in the stock. The company was worth $28.3 billion on Wednesday.

Another 56 stocks alongside GameStop will likely join the reorganized Russell 1000 Index when it’s officially reconstituted after the market close on June 25, Bloomberg reported, citing research from Goldman Sachs. Goldman Sachs did not immediately respond to Insider’s request for comment.

GameStop and AMC are currently listed on the Russell 2000 and have ballooned to the highest-valued stocks as a result of their meme-stock status, according to Bloomberg data.

Catherine Yoshimoto, FTSE Russell director of product management, said in a June 4 press release there has been a “resurgence in market capitalizations of small cap companies in the Russell 2000 reflecting the overall bounce back of US equity markets following the COVID-19 recession in early 2020.”

Meme stocks, many of which are small- to mid-cap companies, came into the spotlight earlier this year when retail traders drove a record rally in GameStop to squeeze short sellers. Other companies, such as BlackBerry, AMC, and Nokia, also skyrocketed. Since then, more companies have been added to the meme-stock bucket as retail traders continue to drive volatility in fan favorites.

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TikTok’s 9 most popular pieces of investing advice, rated and reviewed by 2 financial experts

TikTok Markets
  • The TikTok hashtag “#investing” has amassed over 2.8 billion views on the mobile video app as young people flock to the platform to learn about the stock market.
  • While there’s plenty of helpful information, there’s also a lot of bad advice.
  • Insider asked two financial experts to watch and review nine popular TikTok investing videos with questionable advice. Here’s what they had to say.
  • Sign up here our daily newsletter, 10 Things Before the Opening Bell.

The investing side of TikTok, better known as “StockTok”, is ballooning, with the TikTok hashtag “#investing” garnering over 2.8 billion views. Many videos with tagged with #investing are centered around investing tips, and novice traders on the app have said they often heed the advice.

Thirty-six-year-old Douglas Boneparth, who provides investing advice to Millennials through his firm Bone Fide Wealth, said he loves the greater attention given to the world of investing through social media. But with the democratization of the stock market comes a lot of misinformation and “cringe.”

“It can get loud and noisy, and if you follow the wrong thing you can make some mistakes you really regret,” he said.

Insider asked three market experts for their take on nine popular TikTok investing videos with questionable advice.

Boneparth, along with Sam Stovall, chief investment strategist at CFRA, spoke with Insider for the story. Five of the TikTokers did not respond to Insider’s request for comment, and two couldn’t be reached through social media.

Video: “Max out your 401K could be the dumbest advice

TikTok bad investing advice
A screenshot of Kris Kohn’s TikTok video about 401Ks.

Kris Krohn, @kriskrohn, advised his 832,000 followers to avoid the “401K scam” in an August 2020 video. Krohn, known for his real estate-investing advice, said “max out your 401K could be the dumbest advice that I’ve ever heard for anyone that wants to take control of their financial future.”

“I admire his passion and love for real estate, but this is just factually incorrect,” Boneparth said. “A 401k is not a scam, it offers tax advantages.”

Sam Stoval said the advice is good “only if you like to throw away money, and if you are a believer in illogical conclusions.”

“Maxing your company’s 401K match will get you free money, since the company will give you – free of charge – all or some of your contributions,” Stovall said.

Plus he said stocks, which 401Ks can invest in, have delivered an 11% compound annual total return since 1946, not the 1% Krohn claimed in the video. The retirement accounts can ensure “the building of a substantial retirement nest egg,” he said.

Video: “How to make a million dollars or more with very little effort

TikTok Investing advice
Screenshot of TikTok video on how to make a million dollars

The @teen.executive account, which has 187,500 followers, said people can make a million dollars or more if they use soap and shampoo samples from hotels, saving about $45 per month, and investing those savings into the S&P 500.

Stovall said that practically saving money whenever possible and investing those savings “is indeed useful advice toward becoming a millionaire by the time you retire.”

But, “who’s spending $45 a month on soap?” Boneparth said, “and you still have to pay for the hotel room.”

Boneparth, who wondered if the video was made as a joke, said penny pinching on the small things isn’t the path to financial independence.

“Soap alone isn’t going to get you a million dollars here.”

Video: “I see a stock going up, and I buy it

TikTok bad advice
A screenshot from the @chadandjenny TikTok investing video

The couple from the @chadandjenny account told their 116,000 followers that they make money by buying stocks that go up and then selling at the top.

The video’s advice reminded Stovall of a humorous quote from the Great Depression to buy stocks “that go up, and if they don’t go up, don’t buy them.”

Boneparth said the couple is actually describing momentum trading, in which investors have to time the market, which is “very difficult.”

“You can be very wrong trying to do momentum trading and guess when the stock is going to go up or down,” he said.

From a constructive perspective, the video “encourages novice investors to learn about technical analysis, focusing on: turnaround spotting, trend following, and topping patterns,” Stovall said.

In a response to Insider on TikTok, the user said, “The strategy I use specifically is referred to as scalping.” He said it’s “similar to momentum trading but much more short term.”

Video: AMC could reach $100,000 per share or more

TikTok bad investing advice
A screenshot from the @atomcash TikTok video about AMC shares.

Amid the resurgence in meme-stock mania around AMC Entertainment, the @atomcash account, which has 1,400 followers, said, “Mathematically speaking, it is statistically possible that AMC can reach anywhere from 100k a share to 500 or even a million dollars a share.”

“There is a huge difference between being ‘statistically possible’ and ‘realistic,'” Stovall said.

At even just $1,000 per share, the company, which is currently trading at all-time highs around $45, would be a $500 billion business.

“It’s just absolutely ludicrous to think that AMC, a company that’s bleeding cash and trying to shore up its balance sheet and survive would be worth something slightly less than Tesla,” Boneparth said.

Video: “Buy what rich investors buy”

Tik Tok investing screenshot
A screenshot from the @ceowatchlist TikTok account.

The creator behind @ceowatchlist publishes regular TikToks encouraging his 822,000 followers to track public investing records of CEO’s, senators, and other rich people and buy what they buy.

It’s a piece of advice that a lot of investors follow, seeing how many attend the Berkshire Hathaway annual meeting and read Warren Buffett’s letter to investors, Stovall said.

“A problem with buying what rich people own, however, is that these rich people probably don’t publish a newsletter telling when to buy and sell, along with publishing a track record,” Stovall added. “Therefore, blindly buying what rich people own means you may get in late and never know when to get out.”

Video: “Support and resistance lines will show you when to buy and sell”

technical analysis
A screenshot from @Chris.stocks TikTok video

Tik Tok Creator @Chris.stocks detailed to his followers what a support and resistance level is, and said when you see a stock nearing it’s support or resistance level, you can predict what’s going to happen, and make money.

“That is much of the basis behind technical analysts. ‘The trend is your friend until it ends,'” said Stovall.

Boneparth said the video is a foray into how to use technical analysis for trading, but warned that the skill takes time to practice.

“There’s no secret formula to getting rich,” said Boneparth. “I’m glad people are getting interested but that’s not long-term investing. You just can’t watch this video and go buying and selling.

Video: “Your money loses value in a retirement account”

tiktok screenshot
A screenshot from the @realitycheck2020 TikTok.

In another TikTok video slamming retirement accounts, @realitycheck2020 says that investors shouldn’t use retirement funds, as those charge fees while your money loses value. His solution is for investors to put money in an S&P 500 index fund, and then look for opportunities in new IPOs, cryptocurrencies, and real estate.

Stovall clarified that most retirement accounts allow you to invest in the S&P 500 at a low cost.

Boneparth summed up this video has “really broad financial advice from someone spouting their opinions about asset classes.”

“It’s not backed with any information that would help someone. It’s all predicated on FOMO, of a market that’s been treating investors well for taking risk,” he said.

Video: “SPACs only go up”

tiktok
A screenshot from the @tdorriz TikTok video.

@tdorriz tells Tik Tok that investors can turn their $1,400 “stimmy” (stimulus) into $10,000 by buying SPACs that are about to acquire a target company.

“If these target companies are any good, these stocks will easily double or triple overnight,” @tdorriz said in a TikTok

Boneparth said this investor is incorrectly linking correlation and causation, and urged investors to do their own due diligence.

“To just go buy any SPAC and not understand is a disservice,” said Boneparth.

“This advice assumes that all SPACs make money. There are no investment guarantees!” Stovall added.

In a response to Insider on Twitter, the TikToker said the idea “flopped,” but noted his video was just his opinion not advice. “80% of the stocks I buy go up in my opinion,” he said in a message.

Video: “Invest with cryptocurrency using a loan”

tiktok screenshot horrible investing advice
A screenshot from the @rickrahim TikTok

A TikTok from @rickrahim tells investors to take out a low interest loan, “plow it all into crypto,” and take out a tiny bit of profits each month to make monthly interest payments. Boneparth and Stovall both had strong reactions to this one.

“If he’s trolling, very funny. If he’s not, that’s an extremely dangerous, borderline stupid idea,” Boneparth said. ” Do not lever yourself to invest in any speculative assets. The risk is not worth the reward. Very dangerous, terrible, terrible financial advice.”

“Anyone who believes that a particular asset class ‘always goes up’ deserves to lose money,” Stovall said. “Also, why compound a possible mistake by taking out a loan (which carries its own cost) to purchase the investment you didn’t bother to research, or, worse yet, buying on margin? You’ll only end up losing more than you initially invested.”

Read more: A TikTok crypto influencer with nearly 600,000 followers explains why bitcoin is at risk of tumbling 30% in the next couple of weeks – and unpacks the tools he uses to determine price predictions

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A hedge fund lost 10% in just a few days after a sudden spike in AMC stock derailed an options trade, new report says

A person rides his bicycle past the closed AMC movie theaters in Times Square on October 22, 2020.
  • Hedge fund Mudrick Capital lost 10% in just a few days amid a recent surge in AMC Entertainment’s stock price, the Wall Street Journal reported.
  • The fund announced earlier this month that it purchased millions of AMC shares and sold them at a profit shortly after.
  • The fund is still up 12% year-to-date, while shares of AMC are up more than 2,000%.
  • See more stories on Insider’s business page.

Hedge fund Mudrick Capital lost 10% in just a few days of trading as shares of meme stock AMC Entertainment spiked to record highs, the Wall Street Journal reported, citing people familiar with the matter.

The losses were driven by call options sold by firm founder Jason Mudrick, according to the WSJ. The position, intended to serve as a downside hedge, ended up backfiring as the stock surged too much, too fast.

The runaway share spike occurred on June 2, when AMC shares rose as much as 127%, to $72.62, well beyond the strike price of $40 for Mudrick’s options.

Just one day prior, Mudrick had disclosed a $230.5 million purchase of new AMC stock, then immediately sold those shares at a profit, according to a Bloomberg report. Despite the success of that leg of the overall AMC trade, Mudrick’s calls on the stock were still held short, leaving them vulnerable to the June 2 surge, the WSJ found.

Mudrick did close out all options and debt positions on June 2, albeit too late to avoid the squeeze. While the fund did earn a roughly 5% return on the debt, it ended up absorbing a net loss of 5.4% because of the options trade.

Though the fund took a hit amid the surge, it’s still up about 12% for the year, the Journal said. Meanwhile, AMC, the world’s largest movie theater chain, is up more than 2,000% year-to-date.

Retail traders have been dealing blows to short sellers and hedge funds this year as they’ve poured into stocks with high short interest rates in order to force a short squeeze. Earlier this year, investors on Reddit’s Wall Street Bets led a share price surge in GameStop, which caused short sellers to lose billions.

Amid the renewed meme-stock interest in recent weeks, short sellers have continued to lose money in retail-trader favorites like AMC and GameStop. The meme stock trade has scared off many short sellers from heavily betting against certain stocks.

Read more: Goldman Sachs says these 40 popular stocks can be used to play the meme trade as surging retail volumes create huge money-making opportunities for investors who know when to get out

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