Cost to borrow shares of AMC Entertainment holdings went through the roof today. From a report out just this afternoon on InvestorPlace:
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The cost to borrow (CTB) fee for AMC Entertainment (NYSE:AMC) has skyrocketed to 215.80% today, up by more than 100% from the reading of 101.76% on March 10. Yesterday’s closing CTB fee reading clocked in at 211.41%. Meanwhile, between March 10 and today, AMC stock has fallen more than 10%. What’s going on?
The CTB represents the yearly fee that short sellers must pay to borrow shares. A higher fee could represent increased short seller demand while a lower fee could represent lower demand. A higher fee could also signal a scarcity of available short shares. Still, AMC’s exorbitant CTB fee could actually be seen as a positive for AMC stock shareholders.
Let’s say you want to short AMC. But you don’t want to pay 216% a year interest because…uh…no one does.
But don’t worry! There’s a dandy alternative.
How about a naked short?
With a naked short, you don’t even have to borrow the shares at all! Instead of 216% interest, how about 0%!
Pretty sweet, right?
One small problem. It’s against the law.
There is strong evidence of massive naked shorting in AMC stock. Fails to deliver hit nearly 12 million shares in the latest SEC report.
That’s absolutely staggering, even for AMC. And keep in mind, most stocks have few if any fails to deliver.
Why are tons of trades failing?
To close a short sale, you need to borrow some shares. But it’s kinda hard to do that right now, at 216% interest.
So why not just cut some corners and naked short? It’ll just wind up a fail to deliver and get swept under the rug.
There’s likely a crime here in plain sight. But for it to matter, the SEC needs to act.
But before shorts laugh at the SEC and pop a bottle of Dom, they should think about the risks.
Half of Wall Street is betting that AMC will crash if APE shares convert. This share conversion dilutes AMC stock holders.
But conversion isn’t certain. And even if it happens, AMC shares have jumped after prior dilutions.
In a way, that makes sense.
Yes, you own a smaller piece of the company after dilution. But this heavily indebted company now has far more capital.
That makes the risk of bankruptcy increasingly remote.
I have no idea where AMC or any other stock is going.
But I do know that people don’t like paying 216% interest. And to avoid it, they just might break the law.
After all, what could happen?
Do you think the SEC will act? Leave a comment and let us know!
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