AMC: An imploding time bomb, and put spreads to capitalize

by StrangeRemark

For everyone considering an investment in GME’s little sister – wanted to open the floor to a few facts and why AMC is not GME and how “big finance” has already dumped on retail investors, and are about to celebrate big plays for round 2.

Facts-to-date:

  1. In the midst of this mania, Silver Lake & Mudrick Capital, two scummy vulture investment firms have already quietly extracted almost $1 billion dollars from retail investors. See link and link. These guys are celebrating the best play they’ve ever made on their yachts in the Hamptons right now… to put the size of this into perspective, the value of every single AMC share combined was $500M two weeks ago
  2. Many here have said “well I don’t care, AMC share price is ‘only’ ~20% above pre-COVID times” have it completely wrong and are forgetting how many shares AMC have been issued – there are currently ~3X as many outstanding shares, and the current market cap is 400% of what it was pre-COVID. See here. Adding to the pain, the moves above added even more shares to dilute the value (though elimination of debt does have some positive EV offset)
  3. Unlike GME, there aren’t the same conditions for a widespread short squeeze. Short interest between 15-30% depending on how you count it, multiple funds involved, and plenty of days and liquidity to cover.

The kicker: There are BIG incentives to keep prices elevated in the short term. AMC has already stated they’re in the midst of considering whether to issue more shares again and dilute you further, which would be the mother of short squeeze killers.

The insider conundrum: What might seem bizarre and bullish is that based on the SEC filings to date, the largest insiders have NOT exited their positions yet, unlike insiders at Koss who were happy to unload their entire portfolio. Unfortunately, altruism and optimism are almost certainly not the explanation as share prices are still far above what they would’ve rationally expected for years to come. These insiders are bound by both SEC laws and their fiduciary duty – they can’t say no to raising more capital if it’s in the best interest of the company… but the SEC won’t allow them dump their shares if they’re on the verge of diluting them. They’re mulling over the capital raise carefully, because doing so would also reduce the value of their stake unless they can put the cash to work in a value accretive way. They’re left with two options:

  1. Issue more shares and see if they can effectively take advantage of the cash in a way that overcomes dilution (e.g., buyback, content plays)
  2. Keep the prices inflated and wait until enough time has passed for their lawyers to clear them and dump on retail

The imploding landmine: Both of these moves would kill both the value of the shares and the potential for a short squeeze simultaneously, and ensure share prices go back to normalized values at $2-$4 depending on the level of optimism for AMC’s future

The play: Puts on AMC were prohibitively expensive due to IV since last week, but IV has been creeping down drastically as the price flattens. If AMC prices remain stable through Monday – put spreads post earnings should be the way to go, conservative with buying a 6P and selling a 3P

tl:dr: AMC is disguised as a a cheaper version of GME, but it’s a pump and dump scheme where the winners aren’t who you think they are

Edit: Getting a lot of PMs… to be clear this isn’t an endorsement for/against GME. But one of these two companies has issued more shares during the mania and has told you they’re debating whether to do it again, and that creates a more interesting investment thesis than betting on reddit psychology for the next month. It also doesn’t depend on others joining the cause or holding the line. Not a financial adviser and will be putting my money where my mouth is.

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

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