Retail favorite AMC soars on options buying, woos investors with free popcorn

FILE PHOTO: Times Square characters who pose for photos for money walk past an AMC theatre amid the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., Jan. 27, 2021. REUTERS/Carlo Allegri

FILE PHOTO: Times Square characters who pose for photos for money walk past an AMC theatre amid the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., Jan. 27, 2021. REUTERS/Carlo Allegri (Reuters)

NEW YORK CITY (Reuters) — AMC Entertainment Holdings shares more than doubled to record highs on Wednesday, extending a breathtaking rally partly fueled by heavy options trading, while the theater chain operator promoted free popcorn to investors.

The shares surged 97.3% to $63.23, after hitting a high of $72.62 even as it was halted for volatility earlier in the session.

The massive rise in AMC's shares, by about 3,000% this year, is beginning to resemble the wild ride in GameStop stock earlier this year. Shares of the video game retailer rose more than 1,600% in January, partly because bearish investors unwound their bets against the heavily shorted stock as buying surged.

Other so-called meme stocks touted on Reddit's WallStreetBets and other online forums, including security software provider BlackBerry and headphone-maker Koss, also scored big gains.

"It's meme stock 2.0.," said Steve Sosnick, chief strategist at Interactive Brokers.

On Wednesday, AMC Chief Executive Adam Aron, who has embraced the retail frenzy for his company's stock, offered free large popcorn to even the smallest investor who signs up for a regular newsletter.

The AMC rally is likely partly driven by market markers buying stock to hedge their exposure from selling options, an event known as a "gamma squeeze," analysts said.

"People have learned what tactics work under these insane circumstances. They are using a very similar playbook," Sosnick said.

Call options that would pay off if the shares topped $40 by June 18 accounted for the largest block of open contracts on AMC, with about 215,000 contracts open.

Market makers who sold these and other bullish contracts were left with no choice but to buy AMC stock to hedge their own risk, thereby exaggerating the rally, analysts said.

"Market makers are just chasing the stock," said Matt Amberson, principal at options analytics firm ORATS.

With AMC shares trading around $58, short-sellers stand to lose $1.8 billion today, financial analytics firm Ortex said in a tweet.

AMC shares surged a day after hedge fund Mudrick Capital Management sold a $230 million stake in the company for a profit shortly after acquiring it, saying the stock was overvalued, according to a source.

Investors appeared unfazed by the sale, which some analysts said was an attempt to cash in on the retail-driven rally.

"There's a retail fanaticism with this stock right now," said MKM Partners analyst Eric Handler, who has a sell rating and a $1 price target on AMC stock. "There's such a disconnect between what the stock's doing and what the fundamentals look like."

It's meme stock 2.0.

–Steve Sosnick, chief strategist at Interactive Brokers

On Twitter and WallStreetBets, some users urged holding onto AMC shares while others cheered on the rally.

"$amc let's go again to $100 and beyond," wrote Twitter user @Rodolf30592158.

AMC was the most heavily traded name in options on Wednesday, with 3.5 million contracts changing hands. About $30 billion worth of AMC shares had been traded by midday, by far the most of any stock on Wall Street, according to Refinitiv data.

"It's frantic volume," said Brian Overby, analyst at Ally Invest.

AMC has been among the biggest gainers from a deluge of interest in so-called meme stocks, fueled in part by a new generation of social media centric small-time traders. The shares were trading at just over $2 at the end of last year.

"The (retail trading) party could go on as long as investors could continue co-acting," said Ipek Ozkardeskaya, senior analyst at Swissquote. "The problem is, the higher the price goes, the higher is the temptation to take profit and walk away."

(Reporting by Saqib Ahmed, Sinead Carew, Sagarika Jaisinghani, Aaron Saldanha Noel Randewich and Devik Jain in Bengaluru and Thyagaraju Adinarayan in London; Editing by Nick Zieminski, Sriraj Kalluvila, Shounak Dasgupta, Patrick Graham and Richard Chang)

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