Hedge fund Citadel LLC is holding nearly $500 million in options on AMC Entertainment Holdings, Inc., per the fund’s latest SEC filing.
Citadel’s position consists of $191 million in puts and $272 million in call options, along with a small position in common stock. This massive position has not been reported elsewhere, to my knowledge.
Citadel’s position indicates they may be executing a “long straddle” strategy. This strategy involves buying put and call options on the same stock.
If the stock drops, you profit. If it jumps, you profit too.
But there’s a catch:
The risk of the long straddle is that the underlying asset doesn’t move at all.
AMC’s meme stock investors are generally dedicated to holding for the long term. That provides a stable source of demand for the shares.
If AMC shares don’t move, Citadel could suffer substantial losses.
We’ll see who wins this test of wills.
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