Tag Archives: Meme stocks

Don’t Wanna Pay 216%? How About a Naked Short?

March 23, 2023 tremendousblog 2 Comments

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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Short Sellers Lose $17 Billion in 2023

February 21, 2023 tremendousblog 3 Comments

A surprise rally this year has hit short sellers hard. Losses total nearly $17 billion already in 2023:

From a report out this morning in Bloomberg:

Ten of the most-shorted stocks this year delivered almost $17 billion in combined mark-to-market losses for bears through Thursday, according to data-analytics firm S3 Partners. Tesla, which has surged 67% so far in 2023, leads the group by dealing a $7.2 billion blow to traders shorting the stock. The electric-car maker is followed by Nvidia Corp., Apple, Meta, Amazon.com Inc. and Microsoft Corp.

Heavily shorted meme stocks have also delivered painful lessons to short sellers.

AMC Entertainment Holdings is up 38% this year. GameStop Corp has jumped 17%.

What we’re seeing is an overall risk-on attitude. All the assets we hated in 2022, from crypto to meme stocks to tech, are surging in 2023.

Hedge funds shorting meme stocks are in an especially weak position.

The cost to borrow shares like AMC and GameStop is stratospheric, sometimes passing 100% per year. With fees like that, the stock either craters ASAP or you lose a fortune.

Add that to intense retail interest, and you have a recipe for disaster.

I don’t know where markets are headed. But I do know that paying double or triple digit interest rates to short a volatile stock is reckless.

And what of the bigger names, like Nvidia or Microsoft? Well, it so happens those two companies are some of the most likely to benefit from major advances in AI.

Nvidia makes GPU’s, the chips AI relies on. Microsoft owns a huge piece of OpenAI, one of the best companies in the space.

If AI fever begins to power markets, short sellers in those names will be running for cover.

In general, short selling is a poor strategy. Your upside is capped at 100%, your downside is unlimited, and you’re swimming against the generally rising tide of markets.

I prefer to buy great businesses for the long term.

What do you think is next for short sellers? Leave a comment and let me know!

More on markets:

SEC Refuses to Address Massive Fraud in Markets

Major Hedge Fund Down 54% — Survival in Doubt

Citadel’s Illegal Trades — The Tip of the Iceberg?

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New Report: AMC Fails to Deliver Hit 4.3 Million

November 30, 2022 tremendousblog 5 Comments

Fails to deliver in shares of AMC Entertainment Holdings reached extraordinary levels in November. 4.3 million shares have failed to clear by November 14th, the latest data available.

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This new report, out today from the SEC, shows the highest levels of fails to deliver in months. This is particularly striking given the much lower fails to deliver in the largest stocks.

Let’s see how many fails to deliver some of the largest stocks in the market had on November 14th:

Amazon: 253

Apple: 0

Google: 0

Microsoft: 11,553

These companies are hundreds of times larger than AMC. But somehow, a little theater chain dwarfs them all in failed stock trades.

Fails to deliver can happen for benign reasons. But a long and persistent pattern of fails to deliver, as in AMC stock, can point to something more nefarious.

Huge numbers of failed trades can indicate naked short selling. This is the illegal practice of selling short shares you never borrowed.

It’s a potent way to crush a stock’s price. After all, if you don’t have to borrow a stock, you can sell short all you want!

Increasing failed trades may be related to higher borrowing costs for AMC shares. With fees going from 20% to up to 100% a year, borrowing shares is more expensive than ever.

It’s a lot cheaper to naked short sell. Unfortunately, it’s also against the law.

I urge the SEC to investigate the long term pattern of chaos in AMC shares. Only a full investigation can restore confidence in markets.

What do you think of this huge fails to deliver number? Leave a comment at the bottom and let me know!

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New Index Will Drive Demand for AMC, Other Meme Stocks

September 9, 2022 tremendousblog Leave a comment

Note: This is not financial advice.

Robinhood Markets is launching a new index fund to track meme stocks. From a report that broke this morning in The Wall Street Journal:

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Robinhood Markets is launching an index to track the favorite stocks of its millions of predominantly young, social-media-savvy customers.

The brokerage firm’s new “Robinhood Investor Index” will track the performance of the 100 investments most popular among its user base. Initially, the top five stocks in the index will be Tesla , Apple, Amazon.com, Ford Motor and meme-stock favorite AMC Entertainment Holdings. Robinhood said it would update the composition of the index monthly, offering a view into its customers’ changing tastes.

In an unusual approach to constructing an index, Robinhood said it would weight stocks in the index by the “conviction” customers have in them, defined as the percentage of assets in a customer’s portfolio devoted to a particular stock.

The new index will increase demand for meme stocks, especially those weighted heavily like AMC and Tesla.

When a stock is included in an index like the S&P 500 for the first time, the price generally jumps. This is because so many index funds track the S&P 500.

When a stock is added to it, those funds must buy the stock. Similarly, when investors buy shares of the new Robinhood index, Robinhood must buy stocks like Tesla, AMC, etc.

This increases demand for those stocks.

Indeed, a McKinsey study found that stocks added to the S&P 500 jumped a median of 5%. But the increase was short-lived, disappearing in just 20 days on average.

The effect of inclusion in the Robinhood index is likely to be more modest, given that $5.4 trillion tracks the S&P and the Robinhood index is just getting off the ground. Still, I expect a modest tailwind for meme stocks from this change.

The Robinhood index is an interesting approach. It allows investors to profit from the “wisdom of the crowd,” following investors who have strong conviction about particular stocks.

If an investor is confident enough to put their entire portfolio into a single stock, maybe they know something I don’t.

I’ll be curious to see how the Robinhood index does against other index funds. And you can bet every broker is rushing to create a meme index as we speak.

What do you think of Robinhood’s new meme stock index fund? Leave a comment at the bottom and let me know!

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How AMC Crazy Is Your State?

August 13, 2021 tremendousblog Leave a comment

After an incredible 17-fold rise this year, AMC Entertainment Holdings, Inc. has become one of the hottest stocks in the market. But which state is the craziest for this meme stock?

It turns out my home state of New Jersey is #1 in the country for searches of “AMC” as a proportion of all searches, per Google Trends data from the last 12 months. Kansas, the company’s home state, is #2. (The darker the state, the more AMC crazy it is.)

Play around with the map at the link above and see where your state ranks!

Have a great weekend, everyone!

More on AMC:

HOW SHORT SELLERS COULD EVADE THE NEW NSCC RULES

AMC HAS 35,000 TIMES THE FAILS-TO-DELIVER OF AMAZON

SHORT SELLERS LOSE $44 BILLION IN 30 DAYS

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AMC Has 35,000 Times the Fails-to-Deliver of Amazon

August 4, 2021 tremendousblog 4 Comments

Investors in AMC Entertainment Holdings, Inc. have long tried to draw attention to the possibility of illegal naked short selling in the company’s shares. One common sign of naked short selling is “fails to deliver,” or trades that are not closed out.

So I found it interesting that AMC has fails-to-deliver 35,000 times as large as those of Amazon, one of the largest stocks in the market, based on the latest SEC data.

Fails to deliver can happen for a variety of reasons, some of them benign. But they can also happen when a trader sells short shares he doesn’t own, also known as naked short selling. The shares aren’t delivered because they never existed.

The example with Amazon may be particularly dramatic, but AMC’s fails to deliver are still about 9 times the size of Apple’s, whose market cap is 150 times greater than little old AMC’s.

Here is the raw data from the SEC’s latest report. The number right before the company name is the fails to deliver:

20210701|00165C104|AMC|3519354|AMC ENTMT HLDGS INC CL A COM S|56.68
20210701|023135106|AMZN|100|AMAZON COM INC;COM USD0.01|3440.16
20210701|037833100|AAPL|406167|APPLE INC;COM NPV|136.96

This is nothing new for AMC. Indeed, it has had so many fails to deliver for such a long time that it has repeatedly featured on a special “threshold list” maintained by the NYSE.

It seems highly likely to me that something fishy is going on here. But will the SEC act?

More on AMC:

AMC ON THE THRESHOLD LIST: STRONG EVIDENCE OF NAKED SHORT SELLING

EXPLOSIVE CLAIMS IN LAWSUIT AGAINST ROBINHOOD

SHORT SELLERS LOSE $44 BILLION IN 30 DAYS

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AMC Shorts Lost $642 Million Yesterday

July 21, 2021 tremendousblog Leave a comment

Short sellers in AMC Entertainment Holdings, Inc. got slaughtered yesterday:

Dusaniwsky, managing director at short-selling data provider S3 Partners, told Barron’s he estimates 75.8 million AMC shares are sold short, or roughly 15% of shares available for trading. There has been some covering, as he estimates shares shorted are down by about 4 million over the last week. But with the stock up $8.47 on Tuesday, short sellers were down $642 million in mark-to-market losses on Tuesday alone, bringing the year-to-date losses to $3.82 billion.

AMC surged upward as it consolidated two new theaters into its company and announced discussions with landlords to reopen closed locations.

Short sellers, largely hedge funds, have already lost nearly $4 billion betting against AMC. Their total losses in meme stocks exceed $12 billion.

The only way I can make sense of their stubborn behavior is this: that they’re desperate to recover what they’ve already lost. A gambler who has lost 90% of his life savings in poker may have to keep playing: how else can he 10x his money and get back to where he started? Conservative bets won’t do that.

The only difference is, the hedge funds are playing with someone else’s money.

More on AMC:

SHORT SELLERS LOSE $44 BILLION IN 30 DAYS

HEDGE FUNDS LOSE $12 BILLION ON AMC AND GAMESTOP

HEDGE FUNDS’ AMC DEATH SPIRAL

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Short Sellers Lose $44 Billion in 30 Days

July 8, 2021 tremendousblog 2 Comments

Short sellers had a disastrous June:

Overall, U.S. short sellers are down -$44.49 billion in net of financing mark-to-market losses over the last thirty days.

The #1 source of short seller losses? AMC, by a wide margin, at $2.8 billion. AMC was also the #2 stock in the entire market in increased short exposure in June, a little behind Tesla, which has a market cap more than 25 times as large.

How can we describe this behavior by short sellers? Delusional? Suicidal? Or perhaps rational, given the incentives hedge funds are facing. Numerous funds are down heavily on bad bets against meme stocks. Once a hedge fund is well into the red, it has to make back its losses to even have a chance of earning its 20% performance fee. (That fee is collected only on gains over the capital invested.)

So, the deeper in the hole a fund gets, the more incentive it may have to make risky bets. Only a huge payoff on a volatile stock (like AMC) can get them back in the black, earning those sweet, sweet performance fees.

Unfortunately, this exposes investors who have already lost much of their capital to enormous risks. If I were an investor in a hedge fund that bet against meme stocks, which fortunately I am not, I’d pull my money out ASAP before they lose it all. It’s hard to make money shorting anything in such a hot market, but shorting one of the most popular stocks out there is a recipe for disaster.

The hedge funds were just lucky that June is a short month.

More on AMC:

HEDGE FUND TORCHED BY AMC

AMC + UFC = JACKPOT

AMC’S S-3 WITHDRAWAL: WHAT DOES IT MEAN?

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Why AMC May Be Even Hotter Than You Think

June 22, 2021 tremendousblog Leave a comment

It’s no secret that AMC is going vertical lately:

But this and other meme stocks may be even hotter than they appear based on prices in public markets like the New York Stock Exchange. The reason is a quirk in how retail orders are handled:

The prices of so-called meme stocks may be distorted because the majority of trades in those names are executed away from public exchanges where share price formation occurs, the head of the New York Stock Exchange said on Wednesday.

Meme stocks have a much higher interest from retail investors than most companies. Since retail orders tend to be processed on private platforms, this could have a significant distortive effect on the price reported in public markets.

If many of the trades done by the most enthusiastic buyers aren’t reflected in public prices, this would make the stock seem less desired than it is. So despite AMC’s staggering rise this year, the real enthusiasm may be understated.

In meme stocks, individual traders contribute as much as 70% of the volume, Cunningham said.
The majority of retail orders bypass exchanges because of an arrangement called payment for order flow, in which retail brokerages sell their customers’ marketable orders to wholesale brokers. The wholesalers match the orders internally, trying to profit off of the bid-ask spread, while offering retail traders the best market price or better.

If meme stock enthusiasm is understated, hedge funds trading against the retail hordes should exercise extreme caution. London-based White Square Capital announced plans to close down today after substantial losses in GameStop. Massive losses in AMC and others could cause many more casualties.

The true power of the retail investor may be even greater than it appears.

More on AMC:

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AMC Share Sales: A Wise Move for the Company’s Future

June 10, 2021 tremendousblog Leave a comment

March 25, 2020:

COVID is sweeping the globe, causing shutdowns worldwide. One casualty: all 1,000 theaters of 100 year old AMC Entertainment Holdings, Inc. Like many businesses, its ability to remain solvent was in serious doubt.

Under these cirumstances, a lot of CEOs arrange a golden parachute for themselves and a few golf buddies in the C-suite and throw the frontline workers to the wolves. But not AMC CEO Adam Aron.

He furloughed himself and the entire headquarters staff. Never have I heard of a CEO furloughing himself to save his company money, no matter how dire the circumstances. Whatever AMC’s other problems, it was clear to me then that Aron is a true leader with the company’s best interests at heart.

I bet Aron, his executive team, and the employees manning their theaters could’ve never guessed where AMC would be a year later: solvent, reopening, and an unexpected stock market darling. Indeed, AMC stock is up more than 20-fold this year, with retail traders piling in.

Aron took advantage of that soaring share price last week, selling 20 million new shares for over $800 million. Some have critized that move as selling out existing shareholders by diluting their ownership stake, but I think this decision is a shrewd move to put the company on solid long term footing.

AMC lost over $4 billion in 2020 amid COVID shutdowns and ended the year with just $300 million in cash left. The company faced bankruptcy in a matter of months, if not less. But AMC capitalized on its increasing stock price early this year to issue more shares, and ended the first quarter of 2021 sitting on over $800 million.

With last week’s $800 million sale, AMC’s cash hoard likely exceeds $1.5 billion, taking bankruptcy off the table for the forseeable future.

And while the share sales early in the year involved significant dilution, last week’s issuances only increased the share count by about 4%. With such a high share price, AMC simply doesn’t need to sell as many shares to rake in a nice cash pile. To me, 4% dilution is a small price to pay to ensure the future of a company that looked to be on its last legs just a few months ago.

Do the fundamentals justify owning AMC at current prices? Probably not. But in a world where corporate leadership is often venal, I applaud Aron for putting the company first and ensuring its future. In the long run, its employees, customers, and shareholders will benefit from that.

Tremendous

Tag Archives: Meme stocks

Don’t Wanna Pay 216%? How About a Naked Short?

Short Sellers Lose $17 Billion in 2023

New Report: AMC Fails to Deliver Hit 4.3 Million

New Index Will Drive Demand for AMC, Other Meme Stocks

How AMC Crazy Is Your State?

AMC Has 35,000 Times the Fails-to-Deliver of Amazon

AMC Shorts Lost $642 Million Yesterday

Short Sellers Lose $44 Billion in 30 Days

Why AMC May Be Even Hotter Than You Think

AMC Share Sales: A Wise Move for the Company’s Future

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