Reddit Traders Drive AMC Up +300% in One Day

CrossWinds Capital Analysis

Date Published: January 27th, 2021

Investors this morning woke up to the S&P 500 down, and stocks like GameStop (GME), Naked Brand (NAKD), Fossil (FOSL), AMC Entertainment (AMC) running up more than 100% each. NAKD notably posted an intraday gain of over 252%, adding another 60% after-hours. AMC, which until recently had its stock price beaten down (CrossWinds entry was at 2.16) by stay-at-home orders and the pandemic, led the pack, and saw its stock price rise over 300% in intraday trading.

This week has been a rather novel one if you've kept up with the r/wallstreetbets or any financial morning news show airing coverage of the US Markets. If you're not caught up, here's a short summary:

The popular Reddit subchannel "wallstreetbets" has captured the investing community's attention recently by driving one of the most dramatic short squeezes in recent history. Companies like BlackBerry (BB), Nokia (NOK), and GameStop (GME) have historically been popular short targets for bearish investors. In this past week, each of them has witnessed meteoric rises in their stock prices: BlackBerry up 218%, Nokia up 51%, GameStop up 1,270%. The factor that drove these price movements was not something that any investor had anticipated. It wasn't a reputable hedge fund going long on a position, it was a group of Redditors who noticed the overextended short positions that some capital managers had taken. They bought cheap call options in droves, often with marked up strike prices (i.e. buying $200 calls when the stock price was $14), which forced the short callers to cover their positions. The shorts then had to buy back their stock (which they had borrowed in order to initiate their short position), for even higher prices. This vicious cycle was further perpetuated by the unprecedented enthusiasm of Reddit investors. Even when stock prices had 10x'ed, these traders were still pouring in capital, buying stock and options at high premiums. The resulting show has drawn the attention of millions, and will certainly serve as a case study on short-selling practices and market volatility for business students of the future.

Fund Update

We exited our position today and locked in $15,000 in profits. The trade involved Common Stock and exercised 2/5 Call Options. The position was originally initiated in late December with an average price of $2.16 per share.