Blink and you’ll miss it!

It’s a staring contest of epic proportions. As retail investors continue to unite and drive the price of AMC to record highs, short sellers have maintained large short positions in the hope that momentum will wane and a short squeeze can be avoided. Increasingly, it seems that these hopes may be misplaced.

Let’s start with a catch up on what was another rollercoaster couple of weeks in the on-going AMC drama. In the past two weeks, the AMC share price has almost doubled in value, reaching new highs of $36.72 per share on Friday. According to Ortex data, short sellers lost $1.3bn during the last week, bringing total annual losses to $3.06bn as the price reached $40 per share in today’s pre-market.

Despite this, short sellers maintained their positions and even started to increase them. Ortex data estimates that 17.5% of AMC’s total freefloat shares were held in short positions as of Monday 31st May 2021. This is up from 15.8% a week before. Short sellers weren’t about to blink yet.

 

AMC Short Interest

 

But as markets reopened following the Memorial Day public holiday in the US, short sellers may have been starting to feel a twitch. AMC announced yesterday that it had sold 8.5m shares at a 3.8% premium on Friday’s closing price to Mudrick Capital. That Mudrick Capital then quickly flipped the shares should be of little relevance; the deal strengthened AMC’s balance sheet and the proceeds will be used, in part, to fund “value creating acquisitions of theatre assets and leases”.

The Mudrick news prompted the stock to jump 7%in pre-market trading yesterday, but pre-market activity is equally as buoyant this morning, with the price up over 25% ahead of market open.

Taken together, this raises a fundamental question; how much longer can short sellers hold on? Although we have seen some exiting of positions throughout the year, the majority of short sellers have been happy to sit on significant paper losses in the hope that retail investors will blink first and the losses won’t be realised. This now looks like a flawed strategy.

If nothing else, the so called “meme” stock revolution has supported AMC through the darkest moments of the pandemic and enabled it to come out the other side in a much stronger position. However, the strength of support, and the renewed optimism within the business, indicate the share price could yet go higher, substantially increasing short sellers’ already eye-watering losses. The AMC story is entering a crucial period and something has got to give. The question is which side will hold out longer?

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