Movie poster in an AMC theater in Chicago. (Photo: Scott Olson / Getty Images)
There seems to be a new ‘meme king’ among Wall Street stocks. AMC, the movie theater company, has definitely succeeded Game Stop, which made headlines around the world in January due to the meteoric rise in its stakes, supported by small investors who agreed on Reddit.
AMC Entertainment Holdings shares have soared more than 100% today, to a new record high, extending a runaway advance over the past few months that has seen its stocks soar approximately 3,000% so far this year. .
Its market value has risen exponentially to more than $ 30 billion, dwarfing video game retailer GameStop, another individual investor favorite on forums like Reddit’s WallStreetBets, worth just over $ 18 billion.
The gains came a day after hedge fund Mudrick Capital sold a $ 230 million stake in the company shortly after buying it, saying it believed the stock was overvalued, according to a source.
Investors appeared unfazed by the sale, seen by some analysts as an attempt to take advantage of the rise in stocks driven by retailers.
AMC “made a massive amount of money … and the hedge fund probably made a decent profit on that transaction,” said Giacomo Pierantoni, an analyst at Vanda Securities in Singapore.
The drive of small investors
AMC has been one of the big winners from a flurry of interest in so-called “meme actions,” fueled in part by a new generation of small operators focused on social media. The securities went from just over $ 2 at the end of 2020 to well above $ 60 now.
On Wednesday, the company launched an initiative that offered even the smallest investor a big bag of free popcorn if they signed up for a regular newsletter.
“Even though our shareholders now number in the millions … those people are the owners of AMC and I work for them,” Chief Executive Officer Adam Aron said in a statement.
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GameStop store in New Yoek. (Photo: John Smith / VIEWpress)
Game Stop in memory
What is happening with AMC shares was reminiscent of what happened a few months ago with Game Stop shares, when the Wall Street “sharks” bet against them and ended up losing billions of dollars in a matter of days because the The company’s holdings were skyrocketed by the purchase of small coordinated investors in the “subreddit” (subforum) called Walll Street Bets (Wall Street bets).
Last week, large investors with short positions at AMC lost more than 1,200 million dollars due to the rally experienced by this value, which gained 116% in five days.
Hit the ‘big sharks’
Big Wall Street mutual funds tend to bet against financially distressed companies to make a lot of money from their stocks plummeting.
To make money with the fall of the shares of a certain company, what large investment funds do is borrow those securities from a third party and sell them immediately at the price that is in the market at that time.
After a certain time, they will have to return those shares borrowed so they will buy them again and hand them over to the one who was their owner. They do it in the hope that the price has fallen during that period of time, so they record the gains of the difference between the price they sold it at and the price they had to pay to return those titles.
This is a high-risk trade, because the price could also go up. Theoretically, a stock can only fall to zero, but it can go up to infinity, so losses can be equally infinite.
When a company on which there are many open short positions begins to rise, as is happening with AMC and as it happened in its day with GameStop, the problems begin.
There may be the phenomenon that those who have short positions are forced to buy back the shares by their brokers to limit losses.
If that happens and there is not much liquidity in the market, it can cause the share price to rise even higher due to high demand, in turn forcing other shorts to do the same, creating a vicious cycle. A phenomenon that in stock market jargon is known by the English term “short squeeze.”
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Note prepared partially with information from Reuters, Bloomberg and EFE.