Wall Street brokers are reportedly limiting short bets against meme stocks by hedge funds

AMC Entertainment
  • Major Wall Street brokers are tightening rules over who can bet against meme stocks that are popular with retail traders, according to Bloomberg.
  • Goldman Sachs, Bank of America, Citigroup, and Jefferies Financial are among the firms that have adjusted risk controls.
  • Jefferies Prime Brokerage will no longer offer custody on naked options in AMC Entertainment, GameStop, and MicroVision, the report said.
  • See more stories on Insider’s business page.

Some of Wall Street’s largest brokers are quietly tightening rules on who can bet against meme stocks popular among retail traders in an effort to protect themselves against the fallout from sharp price surges and falls, according to a Bloomberg News report.

Firms that have adjusted risk controls at their prime-brokerage operations include Goldman Sachs, Bank of America, Citigroup, and Jefferies Financial Group, the Friday report said, citing people familiar with discussions about internal policy decisions.

With the adjustments, some hedge funds and other institutional investors now face higher collateral requirements or are limited from shorting certain stocks.

Jefferies Prime Brokerage will no longer offer custody on naked options in AMC Entertainment, GameStop, and MicroVision, the firm told clients in a memo seen by Bloomberg News. Naked options allow investors to short a stock without owning the underlying securities. Jefferies will not permit short sales of those securities and other stocks may be added to its list.

The changes come during a new wave of rallies among so-called meme stocks including AMC GameStop as retail investors on social media sites such as Reddit’s Wall Streets Bets forum band together to force short squeezes on hedge funds that betting shares of the companies will fall. AMC has been the key focus of the latest rally, similar to GameStop’s role during a trending frenzy in January.

It’s not unusual for banks to make risk-control adjustments as market conditions change, the report noted.

A number of brokerages have been looking over their risk controls after some large prime brokers in March were forced to liquidate at a discount the multibillion-dollar portfolio of Bill Hwang’s Archegos Capital Management. The family office collapsed after making wrong-way bets on media and technology companies. Bank of America and Citigroup were not hurt by the Archegos matter, Bloomberg said.

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A stock analyst says Mudrick Capital’s AMC purchase and quick sale shows Wall Street insiders are ‘preying on the naivete’ of meme-stock traders

AMC Entertainment
  • Mudrick Capital’s purchase and then quick sale of AMC stock shows retail investors aren’t the only ones making money during the latest meme stock trading frenzy, said David Trainer, CEO of investment research firm New Constructs.
  • Trainer called the hedge fund’s quick profit an example of “institutions dunking on retail investors.”
  • He acknowledged that there are also retail investors profiting from the sale, but says the trading is risky and investors should take profits now.
  • See more stories on Insider’s business page.

Mudrick Capital’s purchase and subsequent quick sale of AMC stock shows retail investors aren’t the only ones making money during the latest meme stock trading frenzy, said David Trainer, CEO of investment research firm New Constructs.

Mudrick Capital sold all its stock in AMC Entertainment Holdings Inc. for a profit on Tuesday, the same day the movie theater chain disclosed the hedge fund had bought $230 million worth of shares, Bloomberg reported. The firm then went as far as to call AMC’s stock overvalued in the aftermath. The move didn’t sit well with Trainer.

“A blatant example of institutions dunking on retail investors comes from the Mudrick Capital trade,” he told Insider. “They bought 8.5 million shares from AMC and turned around and sold it directly to the public for a quick profit.”

The meme trading frenzy isn’t an example of retail investors “beating” institutions as there are still institutions profiting from this as well. While there are a handful of retail investors getting rich, institutions like Mudrick as well as brokers who collect fees from the trading frenzy are also drawing in money, Trainer said.

“Wall Street insiders are preying on the naivete of retail meme stock traders,” Trainer said in an email.

His message for retail investors who’ve gotten in on the AMC trade?

“Take the gains you’ve made right now to the bank, don’t try to time the market.”

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AMC warns investors to prepare to lose all of their money if they buy the stock amid epic rally

Trader NYSE
A trader works on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., March 5, 2020.

  • Even AMC thinks its stock is overvalued, according to a filing made with the SEC on Thursday.
  • The company warned investors that they should only invest in their stock if they are prepared to incur massive losses.
  • “We caution you against investing in our Class A common stock,” AMC said in the filing.
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AMC Entertainment’s announcement Thursday that it could sell up to 11.6 million shares came with an unprecedented warning to its prospective investors: be prepared to lose most, if not all of your investment in our company.

The movie-theater chain has experienced a dizzying rally in recent weeks, briefly soaring to more than $70 and generating a year-to-date return of as much as 3,325% as retail traders piled into the name. At a $30 billion valuation on Wednesday, AMC was worth more than Best Buy.

AMC CEO Adam Aron is taking advantage of the meteoric rise, having raised hundreds of millions of dollars already this week. The company sold $230 million worth of shares to hedge fund Mudrick Capital on Tuesday, and hundreds of millions more can flow onto the company’s balance sheet depending on the pricing of its 11.6 million share offering proposal.

But AMC is aware that its stock is likely overvalued, given that the pandemic ravaged its business and even prior to the pandemic, the company wasn’t profitable.

“We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” AMC said in a filing made with the SEC on Thursday.

AMC also warned its investors against investing in the company unless they are prepared to lose all of their money.

“Under the circumstances, we caution you against investing in our Class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment,” AMC warned in the filing.

That risk was apparent in early Thursday trades, as the stock plummeted as much as 34% to $41.25.

amc stockcc.JPG
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AMC short-sellers just lost $2.8 billion in a single day – and they’re now down $4.5 billion in 8 days amid a 500% surge for the stock

AMC Entertainment
  • AMC short-sellers lost $2.8 billion on Wednesday alone as shares skyrocketed as much as 127%
  • They’re now down $4.5 billion in just eight days, since AMC shares began a torrid surge that capped out at more than 500% on Wednesday afternoon.
  • AMC shares have benefited from renewed interest from Reddit day traders seeking to squeeze out short positions.
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Short-sellers betting against AMC stock lost $2.8 billion on Wednesday alone as shares skyrocketed as much as 127%. They’re now down $4.5 billion in just eight days, since AMC shares began a torrid surge that capped out at more than 500% on Wednesday afternoon, according to data from analytics firm Ortex.

AMC slid 3% to $60.47 on Thursday as of 9 a.m. in New York.

Short-sellers felt the pain in other meme stocks as well as Reddit day traders banded together to execute squeezes of bearish positions. Shares in home retailer Bed Bath & Beyond rallied 62%, adding up to $681 million in losses, while retail chain GameStop’s stock rose 13%, delivering $414 million in losses, according to Ortex.

It’s activity reminiscent of the GameStop mania that dominated market activity in late January and early February, and the market’s most heavily shorted stocks – including AMC – are once again in focus. Mark-to-market losses from the 10 most-shorted US stocks totaled $4.5 billion just on Wednesday, Ortex data shows.

Yet despite the deep losses, short-sellers appear relatively unperturbed. The percentage of AMC’s free float held short had actually increased to 18% on Wednesday, up from 15.5% a week prior, according to Ortex. Further, data from Bloomberg showed that shorts only slightly pared their positions on Wednesday as AMC’s wild spike was transpiring.

“If you, as an investor, believe the share price will go back to where it was at the beginning of the year, shorting the stock [now] could bring huge profits,” Ortext cofounder Peter Hillerberg told Insider.

He continued: “However, so far, the short bets haven’t paid off, as the upward momentum in AMC has been going for a few days now and seems to only be increasing.”

Read more: Morgan Stanley identifies 28 underappreciated, high-quality stocks to own as the market’s most expensive names are due to continue underperforming

Screen Shot 2021 06 03 at 8.14.40 AM
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AMC’s epic 3,325% year-to-date rally now makes it bigger than these 10 well known companies

NYSE trader worried
A trader reacts as he works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 18, 2020.

AMC Entertainment’s monster rally on Wednesday catapulted the movie theater chain to record highs, with its market valuation eclipsing $30 billion.

The stock saw its year-to-date gains surge to as much as 3,325% at the high of the day on Wednesday, as a frenzy for Reddit favorite “meme” stocks was revitalized following the late January surge in heavily shorted stocks like GameStop. The stock is up about 500% over the past week.

Shares of AMC Entertainment surged more than 100% in Wednesday trades, even after hedge fund Mudrick Capital quickly turned around and sold its more than $231 million stake in the company it had bought on Tuesday. But retail demand for shares overpowered the hedge fund sale, and the company is now rewarding its investors with free popcorn this summer when they hit the theaters, as well as exclusive screenings.

The surge in AMC Entertainment highlights its extreme volatility, and not all are convinced that the company can retain its current valuation. One analyst believes the company is only worth $1 per share. The company is not profitable and has been ravaged by the COVID-19 pandemic, which led to closures of its theaters for months.

And the overall outlook for the movie theater business is in a secular decline. Goldman Sachs outlined on Wednesday that shortening theatrical windows and growing alternative distribution of new movies, like streaming, will make it hard for movie theater operators going forward.

But for now, AMC Entertainment’s $30 billion valuation makes it bigger than these 10 well-known companies.

1. Best Buy

Ticker: BBY
Market Cap: $29.2 billion

Best Buy

2. Tyson Foods

Ticker: TSN
Market Cap: $29.2 billion

tyson foods meat plant
Workers leave the Tyson Foods pork processing plant in Logansport, Ind., Thursday, May 7, 2020. The plant was expected to reopen Thursday after closing on April 25 after nearly 900 employees tested positive for the coronavirus.

3. Nokia

Ticker: NOK
Market Cap: $28.7 billion

FILE PHOTO: Visitors gather outside the Nokia booth at the Mobile World Congress in Barcelona, Spain, February 26, 2019. REUTERS/Sergio Perez/File Photo
FILE PHOTO: Visitors gather outside the Nokia booth at the Mobile World Congress in Barcelona

4. ViacomCBS

Ticker: VIAC
Market Cap: $28.2 billion

Paramount Plus

5. Zillow Group

Ticker: ZG
Market Cap: $28.0 billion


6. Okta

Ticker: OKTA
Market Cap: $27.3 billion

Okta Bell

7. Hormel Foods

Ticker: HRL
Market Cap: $26.1 billion

hormel foods logo spam skippy
The company logo for Hormel Foods is displayed on a screen on the floor at the New York Stock Exchange in New York, US, October 9, 2019.

8. Sirius XM Holdings

Ticker: SIRI
Market Cap: $25.5 billion

sirius xm

9. Royal Caribbean

Ticker: RCL
Market Cap: $24.9 billion

Royal Caribbean

10. Dollar Tree

Ticker: DLTR
Market Cap: $23.8 billion

dollar tree
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Reddit traders pushing AMC stock have helped add over $120 million to CEO Adam Aron’s fortune since the start of the year

amc saved by silver lakes private equity adam aron 2x1

  • AMC’s rising stock price has added over $120 million to CEO Adam Aron’s fortune.
  • Aron owns roughly 4.8 million shares of AMC and hasn’t sold since the Reddit rally began.
  • Short interest in AMC remains high at ~20% despite Reddit traders burning short-sellers for $2.29 billion this year.
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AMC’s chief executive officer Adam Aron has been reaping the rewards of Reddit traders’ push into heavily shorted stocks.

The CEO has seen his fortune jump by over $120 million since the start of 2021 as AMC’s stock has risen roughly 1,500% amid a Reddit-induced rally.

Aron owns or has been granted roughly 4.2 million shares of AMC stock, and unlike other executives, he hasn’t sold since the start of the year, according to CNBC.

The CEO did gift over $15 million worth of shares to his two sons in March, but beyond that, Aron has managed to net over $120 million in paper gains on his stock holdings by simply not selling.

AMC has been the target of Reddit traders for months now due to its high short interest. Traders on the platform have been attempting to squeeze short-sellers out of their bearish bets, causing AMC’s stock price to rocket higher.

Even with the Reddit crowd targeting AMC for months, and a surging stock price, the company’s short interest remains high at around 20% of outstanding shares, according to data from S3 Partners.

In 2021, AMC short-sellers have lost $2.29 billion as well, but that hasn’t stopped them from doubling down.

Last week alone, short-sellers added 2.97 million shares to their bearish bets, all while paying an 8% fee for the privilege, S3 partners data shows.

Despite AMC’s recent rise, analysts remain mostly bearish on the company’s long-term prospects as the theatre business remains in secular decline.

Capital Market’s Alan Gould reiterated his “sell” rating and $1 price target on shares of AMC recently, saying the stock “does not reflect fundamental value.”

AMC recently raised $230.5 million in cash from Mudrick Capital, selling 8.5 million shares for $27.12 each, a dollar higher than the stock’s Friday closing price. However, just hours later, Mudrick Capital sold its stake and called AMC overvalued.

Even with Mudrick’s exit, AMC’s stock jumped double digits on Tuesday as Reddit and retail traders continue to pile on, and shares of AMC traded up 21.76% as of 9:15 a.m. ET on Wednesday morning.

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Mudrick Capital calls AMC overvalued and offloads its entire stake at a profit the same day its $230.5 million share purchase is disclosed, new report says

adam aron, AMC CEO
AMC CEO Adam Aron.

  • Mudrick Capital has sold its entire stake in AMC Entertainment, Bloomberg reported on Tuesday.
  • News of the sale came on the same day AMC disclosed raising $230.5 million from Mudrick Capital’s purchase of 8.5 million shares.
  • AMC said the funding would allow it would go “on the offense again.”
  • See more stories on Insider’s business page.

Mudrick Capital has sold off its entire stake in AMC Entertainment at a profit, Bloomberg reported on Tuesday, with the news arriving on the same day the investment firm’s purchase of $230.5 million AMC shares was disclosed.

Mudrick disposed of the stake after concluding AMC’s stock is overvalued, propelled higher by a wave of enthusiasm among day traders, Bloomberg reported, citing an unnamed person with knowledge of the matter.

AMC shares held to hefty gains following the mid-afternoon report, up by 19% at $31.10.

Earlier Tuesday, AMC said it raised $230.5 million in an agreement under which Mudrick would buy 8.5 million shares for $27.12 apiece. The price was a premium to the stock’s close of $26.12 on Friday. AMC rose by as much as 28% to $33.53 following the statement.

Last week, AMC surged 116% as retail traders active on Reddit and Twitter banded together to squeeze short positions. The rally was originally catalyzed by major shareholder Dalian Wanda Group selling almost all of the remainder of its stake in the company. Redditors responded by cheering the newly available shares and making their newfound weight felt in the market.

AMC has been in recovery mode after the COVID-19 pandemic forced it to temporarily close locations worldwide to help curb the spread of the disease. It said Tuesday the funding from Mudrick would go in part toward potential acquisitions and that it was discussing a potential deal for Arclight Cinemas and Pacific Theatres. Those chains were shut down last month by Decurion Corp. which decided to close its roughly 300 movie houses.

AMC led a broader rally in so-called meme stocks last week that included GameStop and Virgin Galactic. Short-sellers wound up losing nearly $3 billion betting against those three stocks alone, according to financial-analysis firm Ortex.

“With our increased liquidity, an increasingly vaccinated population and the imminent release of blockbuster new movie titles, it is time for AMC to go on the offense again,” AMC said in its early Tuesday statement.

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The rotation from bitcoin into ether could point to a 2017-style correction in the crypto market, research firm says

  • The surge in prices for cryptocurrencies this year “has a whiff of deja vu”, reminiscent of bitcoin’s rally in 2017, said Vanda Research on Monday.
  • Bitcoin’s rally four years ago was followed by a correction and a jump in interest in then-lesser known cryptocurrencies like Ether.
  • Bitcoin and Dogecoin have slumped after hitting all-time highs this year.
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Prices for Bitcoin and other cryptocurrencies have boomed this year, in part on growing acceptance of digital assets by Wall Street and corporate America, but a broader correction in the market appears to be brewing and it’s reminiscent of bitcoin’s slide in 2017, one research firm said Monday.

Bitcoin so far in 2021 pushed above $1 trillion in market capitalization and hit an all-time high of $64,804.72 on April 14, the same day that Coinbase, the largest cryptocurrency exchange in the US, began trading as a public company. Dogecoin last week surged to a record high of over $0.73, according to CoinGecko, and ether, the token tied to the Ethereum blockchain, on Monday notched a record high of $4,221.20. Bitcoin and ether are the two largest cryptocurrencies by market capitalization.

“The meteoric rise in cryptocurrencies has a whiff of deja vu,” to bitcoin’s move in 2017 when a months-long rally catapulted it to become the best-performing crypto asset, said Vanda Research, which tracks retail investing activity, in a note Monday.

“When the rally started to look tired in November [2017], investors rotated to lesser-known altcoins like Ripple and Ethereum, which quickly became household names, too,” wrote Ben Onatibia, head of markets at Vanda Research. Ripple then peaked in early January 2018 while Ethereum held to its gains until mid-to-late January of that year, he said.

“In the months that followed, cryptocurrencies cratered as retail investors rushed to the exit,” he said.

Now, the crypto market is in the midst of “precisely the same hot potato game,” that took place four years ago.

“Under the pretext of institutional support, retail investors started rotating out of speculative retail stocks and pouring their money into Bitcoin,” Vanda Research said in its note. Following the most recent peak, retail buyers have flocked to dogecoin and ether, echoing what transpired in 2017.

Read more: A 29-year-old crypto billionaire who’s made millions from digital-currency arbitrage shares 2 tips for investors looking to get started in trading- and explains why ether is unlikely to surpass bitcoin

Bitcoin’s jump this year has been supported as more big firms have stepped up their activity into the crypto market. Electric vehicle maker Tesla in February said it invested $1.5 billion in bitcoin and CEO Elon Musk said it would start accepting bitcoin as payment for its cars. Meanwhile, Goldman Sachs has formed a new cryptocurrency trading desk and PayPal started allowing US consumers to use their cryptocurrency holdings to pay at millions of its online merchants.

But Bitcoin has dropped 13% since its all-time high less than one month ago, trading below $57,000 on Monday. Dogecoin has tumbled 34% since last week’s high, slumping below $0.50 on Monday after dogecoin enthusiast Musk talked about the meme token during his gig hosting “Saturday Night Live” over the weekend.

“Despite Elon Musks’ attempt to boost Dogecoin this weekend … it has failed to climb back to year-to-date highs. If and when Ethereum suffers the same fate, the cryptocurrencies will likely face a wave of redemptions,” said Onatibia. He noted that Musk’s SpaceX satellite company has said it will accept the meme cryptocurrency as payment for the company’s mission to the moon in 2022.

“Indeed, open interest data from different crypto exchanges shows that there has been a rotation from Bitcoin to Ethereum since the Coinbase IPO. We think a correction in crypto would push retail investors back into equities, where some of their favorite stocks are now trading at a significant discount vis a vis the February highs,” said Vanda Research.

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AMC drops as movie-theater chain’s CEO again discusses potential issuance of 500 million shares

AMC Entertainment
  • AMC shares fell by more than 6% during Thursday’s session after the company reiterated plans to issue 500 million shares.
  • The movie-theater chain’s CEO sees an “opportunity” to bolster cash reserves and make other operational moves.
  • “We’ll be sensitive to dilution issues,” said AMC CEO Adam Aron on CNBC.
  • See more stories on Insider’s business page.

AMC shares fell Thursday after the movie-theater chain’s chief spoke about the company’s plan to issue 500 million shares.

AMC in a March regulatory filing said it wanted to increase the number of shares to total more than 1.02 billion and for shareholders to vote on the matter on May 4.

“We’ll be sensitive to dilution issues, but at the same time there’s an opportunity to bolster our cash reserves and there’s an opportunity to buy back debt at a discount or pay deferred theater rents,” AMC CEO Adam Aron said on CNBC’s “Squawk on the Street” program. “There are a lot of good reasons for shareholders to give us the authority.”

The company is already seeing benefits from the vaccination of millions of Americans from COVID-19 as well as from the release of new movies, Aron said.

Shares of AMC fell by as much as 6.3% to $9.56 before trimmed losses to 5%. The shares, which have grown in popularity among investors on Reddit’s Wall Street Bets forum, have leapt from around $2 each at the start of 2021.

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GameStop, AMC, and other Reddit favorites climb as day traders look to reignite momentum

GameStop Clerk
A customer laughs with a clerk as he purchases a copy of the video game “Grand Theft Auto IV” at a GameStop store in New York

  • GameStop, AMC, and other Reddit-favorite stocks gained on Monday as day traders aimed to spark rallies similar to those seen in January.
  • The group of previously unloved stocks has fluctuated in recent sessions as bullish momentum locks horns with profit-taking.
  • The day traders lack the element of surprise they enjoyed earlier in the year, and regulators are investigating whether Reddit posts fueling the previous surges constituted manipulation.
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GameStop, AMC Entertainment, and other so-called meme stocks gained on Monday as retail investors looked to fuel new rallies.

The video-game retailer rose as much as 10.1%. AMC climbed 13.7%. BlackBerry and Express swung 5.2% and 7.4% higher, respectively.

The stocks have traded with elevated volatility in recent sessions as day traders congregating online try to repeat the surges seen at the start of the year. Recent posts on r/wallstreetbets and other trading forums praising the upswing garnered thousands of comments and votes of approval. And while the companies trade well below their January highs, they still boast huge year-to-date gains.

The gains follow broad selling across the Reddit favorites. The stocks tumbled in Friday trading after rising the session prior, underscoring the back-and-forth action seen since January’s extraordinary rallies.

Retail investors looking to lift prices again face a tougher challenge. The Reddit-savvy traders had the element of surprise when they first bid up shares, and their ability to shock the market establishment quickly publicized the trade. The stocks’ unusually high short interest also exacerbated the rallies as bearish investors had to buy shares to cover their souring bets.

Those surges are old news now, and Wall Street has caught on to the Reddit traders’ antics. Hedge funds started tracking posts on relevant forums to monitor which stocks day traders could target next.

Separately, regulators are looking into the January price action to determine its legality. While the Reddit crowd has repeatedly indicated they simply “like the stock,” those warier of the sudden climbs suggest the online communication could qualify as market manipulation. 

A new report suggests bots also played a significant role in driving hype around the trade. Fake accounts on major social media platforms amplified calls to buy and hold shares of GameStop and other relevant stocks, Reuters reported, citing analysis by cybersecurity company PiiQ Media. Still, it’s unclear how much of an impact the bots had on the rallies.

Lawmakers have already taken steps to better understand the market phenomenon. The House Financial Services Committee held a hearing in February on the matter, and the Senate Banking Committee is poised to do so. 

GameStop closed at $101.74 per share on Friday, up about 428% year-to-date.

AMC closed at $8.01, up 270% year-to-date.

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