Hedge Funds Stand Their Ground Against r/wallstreetbets in Latest Showdown

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AMC has now had their own GameStop-esque frenzy after shares soared this week amid more Reddit fueled trading sessions creating wildly volatile market movement.

See: AMC Files to Sell 11.5 Million Shares, Advises Investors Not to Buy as Stock Tumbles
Find: Musk’s ‘Baby Shark’ Tweet, Reddit Meme Stocks Redux & AMC Beach Banner Drive Market Frenzy – You Should Play It Cool

Like GameStop, trading for AMC was halted several times as rookie traders started buying up the stock en masse, more than doubling the share price to past $69. For reference, their average 12 month price target is around $4.56 and analysts claim it shouldn’t be valued more than $4.

AMC and other movie theaters were among some of the hardest-hit sectors as a result of the pandemic. Industry insiders believe that the magnanimity of revenue losses during 2020 could not possibly justify the upward trajectory of its current valuation. Loop Capital Market’s Alan Gould stated that AMC stock does not reflect fundamental value.

Bloomberg reports that Mudrick Capital sold all of its stock in AMC Holdings as of Tuesday as the meme stock war ensued once more.

While the Reddit machine churned away, Wall Street insiders doubled-down on their bets against the tide; short positions against single shares of AMC climbed for a ninth straight week yesterday as AMC continued to climb according to prime-broker data from Goldman Sachs and reported by Bloomberg.

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Find: Hedge Fund Manager Warns: Beware the Meme Stock

Last week, it was reported that investors shorting the AMC stock were said to have lost an estimated $1.23 billion as shares surged. This did not deter hedge funds though from keeping their betting ground and keep shorting the meme stock. The percentage of shares outstanding sold short edged higher Tuesday to top 20% and as the stock doubled again on Wednesday, short interest only slipped below 19% added Bloomberg. This suggests that the volume of short bets probably increased, as the stock doubled and short bets maintained the same relative percentage according to volume. In other words, as more people kept buying into the hype, more and more market insiders started betting for its inevitable downfall.

The bets paid off, as this morning AMC announced it planned to sell more than 11 million shares amid the trading frenzy.  Almost immediately, shares of AMC dropped 30% and was briefly halted due to the volatility. Before the announcement, shares were up more than 20% in premarket trading.

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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 
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