These will probably be three posts to make it not too long. People getting tired of reading too, I heard.
Here we go.
What is a Short Squeeze and what is up with AMC?
AMC is not the Sister of AOC, the communist Bartender in the US Senate who lives the big life now lecturing you about the Green New Deal and attending counselling classes since she is still suffering from the Trump Syndrome.
AMC Entertainment Holdings, Inc., through its subsidiaries, involved in the theatrical exhibition business. The company owns, operates, or has interests in theatres. As of March 12, 2021, it operated approximately 1000 theatres and 10,700 screens in the United States and internationally. The company was founded in 1920 and is headquartered in Leawood, Kansas.
A snipped of the Income Statement tells you quickly how they are doing. While the stock price is rising to astronomical heights the company itself is almost bankrupt. The numbers below are in million Dollars. Their Sales, Revenue fell from 5.5 billion to under 500 million in 2021. Theaters belong to a dying arm of the entertainment industry. IMO! Since China's Red Wuhan pandemic their sales plummeted and even we are already 6 month into 2021 the sales did not reach any level close to 2019 or taking off. Take a quick look at OPERATING INCOME, the income the company generates through its sales. the margin was at 5% at good times, very little. Then about 3% in 2019 pre epidemic! The Income in 2019 was also 50% of that of 2018 with the same amount of sales! Pre Pandemic!!
And then it plunged to minus 300% in 2020 and minus 500% in 2021, TTM = Trailing Twelve Months. The SGAC, Selling, General and administrative costs stay constant. This means wages and rental costs and such.
The industry standard of the EBITAD multiple (it is more stringent than the profit margin) is 13%, they were hovering around 5%, then 3% and now under water.
Thus, Hedge Funds have to balance their portfolio in order to eliminate market fluctuations. The Beta of a company tells you the volatility a stock is having and hence is part of the equation for hedging. In the end you buy stocks in a good company, you go long and you sell stocks in a bad company, you short it.
The result is that you do not care if the market goes up or down. You only care that the good company continues to outperform the bad company. This is your capital gain. Your gain as an investor if this is where you put your money.
I heard there are still people believing in Mutual Funds and Saving Accounts. Well, well.
Now Hedge Funds shorted AMC for the mentioned reasons. They borrow shares from their brokerage and pay interest on the money. Then the Hedge Funds selling those shares on the market for the current price and receive the capital for them. Then when the price falls over time since it is a bad company they buy back their shares, return them to the brokerage and they keep the difference as a profit. The Brokerage earns interests on it. A deal deal.
Sell high and buy back low later.
There are about 90 million shares shorted in AMC. At a price at closing of 42 Dollar this makes about 4 billion Dollars on the table to be flushed out!
If you want to take part in the next squeeze I think this might be a good webside. Lot of numbers.
Now comes the Ape Squeeze
Since the Hedge Funds sitting on borrowed shares and waiting for an further decline in the stock the Army of Apes want to bring the price up. The higher the price goes the more expensive it becomes for the short position holders!! They might have to buy back their shorts for more and not less, got it? It is really simple.
Now, The Apes borrowed all their money from friends, emptied all their savings and borrowed from their parents to take part in the Ape Squeeze Crusade. They started buying and buying and the price starts to rise. Supply and Demand. The media also pushed it higher with their reporting and so did several websites and chatrooms.
Now the Apes wait for the final battle if they dont run out of money beforehand, and that is that the rules for the hedge funds dont get over written. 10-15% loss in any position then close it. The Apes wait for the Hedge Funds to start to close their positions, buying back their shorts and drive the price further up! They will have to buy 90 million of shares to close! And when one Hedge Fund starts the others will follow. The stock will sky rocket. Thats the concept.
Than the Squeeze frenzy is on. Those who get out earlier and went in earlier or are not so greedy will make money. But remember their is always someone who pays the other side! Always two parties in a sale. Hedge Funds versus Apes
What happen since Wednesday and what did I trade in AMC and why I was wrong first. See next post coming
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