Reddit retail investors are at it again. This time they have flocked towards the debt-troubled movie chain AMC Entertainment (NYSE: AMC).
As of intraday Wednesday, shares of AMC have skyrocketed as much as 310% from Tuesday’s close.
The crazy gains experienced by AMC occurred today after online investors using Reddit’s popular thread “Wallstreetbets,” hyped up the stock. They did this by posting memes and spamming AMC emojis to try and convince thousands of traders to buy the stock, according to The Verge. Reddit retail investors have used a similar approach in sending shares of GameStop (NYSE: GME) surging, as well as Bed Bath & Beyond (Nasdaq: BBBY).
How Short Squeezing Works
This approach is called “short squeezing,” aimed to hurt hedge funds and Wall Street professionals who are short on the stock. When an investor shorts a stock, the investor borrows shares and immediately sells them, hoping he or she can scoop them up later at a lower price, return them to the lender and pocket the difference. Short squeezing works by finding stocks that have been heavily targeted by short-selling and, through the options market, driving up the price through heavy buying. The more buying, the more the shorts have to "cover", and the more the price further moves up--and the more these short sellers lose. According to data from financial-analytics firm S3 Analytics, short-sellers of GameStop have suffered net-of-financing mark-to-market losses of more than $5 billion so far this year.
This week, shares of AMC have gained as much as 480%. In addition to the help of the Reddit board, AMC said Monday that it secured enough financing (more than $400 million) to stay afloat “deep into 2021.”
“This means that any talk of an imminent bankruptcy for AMC is completely off the table,” Adam Aron, the chief executive officer of AMC said.
Two Potential New Targets
Now the question is what stocks will the Reddit mob target next? Well, investment banking firm Wells Fargo (NYSE: WFC) has compiled a list; it thinks names including Cheesecake Factory ( NASDAQ: CAKE) and Carvana (NYSE: CVNA) could be the next short squeeze targets.
CapitalWatch has no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only and does not constitute financial, legal, or investment advice.