AMC: Short Queeze + Gamma Squeeze

Gamestop was the previous gamma squeeze + short squeeze target and it shot up all the way from $4 in August to $98.15 today.

Now it looks like the target is AMC. Notice the extremely high volume as it gapped up from the $2’s to the $3’s last week and to around $4.40 this morning.

Gamma Squeeze: You can see above the enormous amount of out-of-the-money options being purchased for AMC. The numbers were large on Friday as well. These options expire in 4 days, and the market maker selling these can lose a lot of money fast if the stock shoots up, so they have to hedge by purchasing the underlying shares.

Short Squeeze: The chart above that shows a large amount of short interest. When these managers sell short, they borrow the shares and then sell them at market, planning to buy them back for less. If the shares double, then they have to pay twice as much to buy them back. These institutions either have stop-buys where they close out their short positions when the price rises past a point, or they will start to owe so much with the price rising that they have a margin call forcing them to buy back.

Anyway, I decided to get in on this one so I bought a bunch of shares this morning around $4.40 or so and sold $5.50 covered calls at $0.70 or so. By the time I took the screen shots to write this, those 4 day out-of-the-money calls are selling at over $1 each. If they are called out in 4 days, that is a 44% profit! What set this off was a successful debt issuance last week which pushed a possible bankruptcy out for years.

About johnonstocks

I've been trading stocks since 2003, active on Motley Fool's discussion boards and using first Hidden Gems, then Global Gains. I no longer have the newsletters, but I keep up on the WSJ and read David Rosenberg everyday at gluskinsheff.com. Education: CFA level 2 candidate MBA-focus in Finance, Marshall, University of Southern California - expected Dec 2010. BS Mechanical Engineering, UC San Diego, June 2002
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