AMC Entertainment was hit hard last year during the COVID-19 pandemic. They reported a whopping $4.59 billion loss in the 2020 fiscal year. This led AMC to nearly close its doors forever on movie-goers around the world. Hope for the beloved movie theater chain was all but lost. Until a band of 175,000 Reddit users from the famed r/wallstreetbets Reddit forum has shifted its tide.
The Redditors, or as they have labeled themselves as “apes,”, expect a big turnaround in their investment in the meme stock. Wall Street analysts believe it’s a flop. They predict it’s so much of a flop, hedge funds have been betting on AMC to shut its doors for good this time. With the rise of streaming movies at home and a recent pandemic will movie theaters be around much longer? Who is right? Who should we trust? Down the rabbit hole we go.
AMC Entertainment Stock Rise History
Remember the GameStop spike that happened back in January? When GameStop’s stock rose to a record high value of $347.51 per stock? Well, during this time, AMC shares were also being quadrupled in price boost at $20.36 per share. We can compare this to its December 2020 low at $1.99 per share, that’s quite a spike. This unprecedented spike led to a clash with Wall Street hedge funds and retail investors alike. Redditor’s “apes” hyped AMC’s undervalued stock to become overvalued stock by seeing a drastic price increase in just a short amount of time. This is a classic case of how a meme stock becomes reality.
While the trading of these meme stocks was happening, the unthinkable happens. The day-trading app, Robinhood, seizes the purchase of GameStop ($GME), AMC ($AMC), BlackBerry ($BB), Bed Bath & Beyond ($BBBY), Nokia ($NOK), and more. Not only did Robinhood halt purchases, but even traditional brokerages by the likes of Charles Schwab and TD Ameritrade. The users of these trading houses had access to close out any existing conditions of those stocks. Yet, were not allowed to purchase more.
Apparently, “recent volatility” and “unprecedented trading activity” were cited amongst these companies restricting trading. It seems odd that some of the largest financial firms in the world would close shop on an important day for retail investors. Two million to be precise. Apparently, a hedge fund by the name of Citadel Securities – who processes 60% of trades with Robinhood – pressured the company to block trading during this time because they were losing money. This unlawful act caused GameStop’s and everyone else’s trading of stock to a halt. When everyone thought it was said and done, another wave in the market was making its way.
The Market of the Apes
Retail investors – people like you and me – occupy 85% of the overall AMC float. A float is a collection of shares a company issues to the public available for trade. These retail investors refer to themselves as “apes.” According to CNBC, the name of the Reddit users came from “an internet meme based on the movie Rise of the Planet of the Apes. For those not familiar, the film’s main character is a chimpanzee named, Caesar. He’s the leader of the pack who uses American sign language to often say “apes together strong” to his fellow apes in times of hardship.
The “apes” have adopted this phrase into their investing ethos. If the “apes” remain united they can outlast those that are short – Wall Street hedge funds – on the AMC stock. Adam Aron the CEO of AMC Entertainment – the world’s largest cinema chain operator – associates himself with the “apes.” The Redditors have even bestowed him the nickname of “Silverback” being their undisputed leader. Aron himself in an interview said how he believes that “the shareholders of our company are the owners of our company…I work for you.”
When talking about the “ape” community you cannot forget to mention YouTuber and investor, Trey Collins. Collins also goes by Trey Trades for his social media persona. He serves as the middle man between the Silverback and “apes.” Collins has also perpetuated the meme stock’s popularity by educating “apes” new and old about the movement that they’re trying to accomplish.
The Apes Motives to Revive AMC
The motive behind all of this is how the “apes” are expecting a short squeeze to happen with the AMC Entertainment stock. A short squeeze, in definition, is when a stock or other asset jumps sharply higher. This forces a trader who had bet it would fall – hedge fund – to buy it to forestall even greater losses. Then what happens is when every buying transaction by a short-seller sends the price higher, it forces another short-seller to buy. This happened similarly back in 2008 during the housing market crash.
The “apes” are hoping that by causing this short squeeze they make out like kings. This will make Wall Street hedge funds in a loss of millions of dollars – as they already have – and possibly lie in debt. As Wall Street hedge funds are banking on the downfall of AMC Entertainment, the “apes” have high hopes for the theater chain. In order to accomplish their mission, they’ll need to stick together through the stock market’s momentum.
Using Wall Street Tactics Against Them
Aron himself reports in an interview with CNBC that he suspects AMC being a victim of short-selling. Short selling is a lot like gambling. It’s an investment strategy that could lead to big profits and big losses. This is what Wall Street hedge funds are trying to do with AMC’s stock. Aron states in an interview how he feels hedge funds are “game playing with our stock.” Wall Street hedge funds use these short-selling tactics often to target retail investors.
After reading an interview with a bond trader, Chris Arnade this made it clear as day. Arnade spent two decades on Wall Street. He left his profession as a trader as he became disillusioned with the culture of greed and cynicism. He once wrote on Twitter, “The Reddit horde through collective action is doing to hedge funds what hedge funds do to normal investors all the time.” Let’s break down that statement.
What Exactly This All Means
Hedge funds can operate in more than one way. According to Arnade, a classic Wall Street tactic with hedge funds is to execute a particular trade in a way that gets them the most bang for their buck. So, in this case, hedge funds are betting on AMC stock to drop. This occurs by “exploiting complex financial products and what we call “technicalities” in the market.” Arnade says that this kind of behavior is hailed on Wall Street. Basically this means, you’re outsmarting the room while also telling people that you’re outsmarting the room.
This is what AMC’s “apes” are hoping to achieve for these hedge funds. They’re hoping to do this by reversing Wall Street’s exploiting short-selling tactics on them, making hedge funds lose more and more money. The key is to make these hedge funds have to sell their stock which would go against their predictions of AMC’s failure. This is when the short squeeze happens. It will cause hedge funds to buy at a higher price, which would make hedge funds lose money and leave investors in debt to third-party lenders. These tactics have been proven to already be working as mentioned earlier with hedge funds losing almost a billion dollars in this endeavor alone.
Should You Invest?
Placing your money in the stock market is a risky business. Especially if you’re banking on a meme stock such as AMC or even GameStop. The “apes” can succeed by remaining patient and strike when the time is right. AMC’s value is currently rising in the market with no sign of decline showing that anything is possible. CNBC reports how short sellers of the meme stock have already been dealt $1.23 billion in losses this last week alone.
So, if the “apes” continue to hold onto their shares and force this short squeeze, things could look illustrious for both AMC and the Redditors. But, if they sell their shares on a whim when the stocks start gradually rising, it would’ve been for nothing. The sole mission of the “apes” is to force the short squeeze. This will make hedge funds short-sell their investment into AMC, allowing for the “apes” to cash out exponentially.
Aron has recently urged shareholders to allow 25 million shares to become available for AMC. This move can only happen if the shareholders vote to allow this decision to be executed during the shareholder’s meeting. In the eyes of the “apes”, this is seen as a way to dilute the stock, decreasing its value and going against everything they’ve worked toward. In Arons most recent interview with Trey Trades he says how “shareholders should authorize more shares…this could be a very valuable tool to build this company going forward and grow this company going forward.”
I am not a financial advisor. This is not financial advice. I’m simply an average joe with a story of the underdogs rooting for that unlikely win.
Do you think AMC is worth the investment or just a fad? Leave a comment below with your thoughts!
This article originally published on GREY Journal.