What a week it has been for the big movie theater chain AMC Entertainment. Earlier this week it announced that it would stave off bankruptcy and stay in business in 2021 after securing a new round of financing.
On Wednesday, thanks to the casual traders that are driving by Reddit’s “r/Wallstreetbets” community, Tik Tokkers, and other social media outlets who are pushing the “SaveAMC” initiative, AMC’s stock has skyrocketed almost 300%.
Just three weeks ago AMC shares were trading at $2.01. They closed Tuesday of this week at $5 per share, so already a nice profit for those that bought recently. Then on Wednesday, the stock price soared to $20.31, the first time it had been above $20 since September of 2018, as the company, and the movie theater industry in general has been crushed by the coronavirus pandemic.
The r/Wallstretbets community is where casual investors trade stock tips and show off their winning trades. They were also responsible for the surge in share price for GameStop, which recently was trading at $148 per share, after being under $20 per share at the end of 2020.
The casual traders are literally battling hedge funds head on, by targeting companies popular with short sellers who are betting that a company (like AMC) whose stock will go down. AMC and GameStop have both been popular stocks for short sellers. So, by pumping these stocks up through their community, it creates a “short squeeze,” which forces the hedge funds who were shorting them to buy even more shares to cover their positions and minimize losses. And in the process, the stock price tends to go even higher because of that.
There’s also residual benefit for companies with trading names that are similar to the ones the Reddit community is pumping up. AMC Theaters trades with the name “AMC.” AMC Networks is a company that owns BBC America, Sundance Channel and other TV networks, and they saw their stock price rise 12% Wednesday, based on traders mixing up the names.
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