6/24/2023 0 Comments When will amc squeeze![]() ![]() The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. The difference in prices between AMC’s common stock and the APE units provided an opportunity for arbitrage traders to capitalize on the price variance, expecting the prices of the two to be equal once the conversion of the APE units to common shares materializes.ĪMC has an overall D rating, equating to Sell in our POWR Ratings system. In March, AMC shareholders approved increasing total shares by converting APE units to Class A common stock. Borrowing fees had jumped to more than 750% last week when the pool of borrowable AMC shares decreased significantly. The high short demand has caused borrowing fees to skyrocket. Let’s discuss why.ĪMC currently has very high short interest due to its poor fundamentals and plans to convert AMC Preferred Equity (APE) shares into AMC Class A common stock. Currently, AMC has a short float of 24.6%, which indicates another potential short squeeze. Buying shares to minimize losses leads to a further spike in the price. He is president of McMillan Analysis, an investment and commodity-trading adviser.A short squeeze happens when a significant, short-term spike in a stock’s price forces short sellers to buy shares to minimize their losses. McMillan is a columnist for MarketWatch and editor of the “MarketWatch Options Trader” newsletter. Obviously, there are lot of options combinations that could be considered, but these are two relatively simple spread strategies that will pay off if AMC behaves like other short squeezes: Eventually the stock peaks and begins to fall, but it doesn’t fall far enough to reach its “pre-squeeze” levels. The potential gain here would be the credit initially received, but the margin requirement - which is equal to the risk in the spread - is the difference in the strikes, less the credit received. A derivative of this strategy, for extremely aggressive accounts, would be to sell puts (naked) with strikes in the teens. AMC was in the teens before this latest round of short squeeze began. Sell put credit spreads with strikes at or near the price of AMC prior to the short squeeze.You can’t lose more money than the debit you pay for the spread, but you could lose 100% of that debit if the stock continues to rise and the options expire worthless. This strategy generally has an advantage in that the implied volatility of the put you are buying is lower than the implied volatility of the put you are selling. Buy puts with striking prices just below the current elevated stock price and sell puts with a significantly lower strike price. Two options strategies could take advantage of this: In both of those cases, a similar pattern appears: The short squeeze ends, the stock falls, but not all the way back to its “pre-squeeze” price, at least not for a while. Well, they may be overpriced, but at current volatility levels, the stock can move a great distance and cause ruin for an options-selling strategy. Many traders want to sell the options because they think they are so overpriced. However, out-of-the-money options are much more expensive, and those are generally unattractive purchases - certainly not based on a statistical basis. However, those volatilities will drop quickly if the stock starts to stabilize - wherever that may be. But as long as they hold up, at-the-money options are not a lot more expensive than that, in terms of implied volatility. The 20-day historical volatility (HV) is 160%. ![]() The 10-day realized (historical) volatility of AMC is now an astounding 211%. So, what option strategies make sense? Simply buying expensive options is justifiable while volatility remains high, believe it or not. (Don’t worry about what that means statistically, just use it as a comparative measure - 200% is a lot higher than the “normal” volatility, up to four times that of its pre-pandemic level.) The composite implied volatility has risen to more than 200%. ![]()
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