Another Short Squeeze Could Be Coming For This Stock
Retail traders have shown a keen interest in the theatrical exhibition stock AMC Entertainment Holdings, Inc. $AMC Entertainment(AMC.US$ over the past two years due to its potential for a short squeeze. Along with GameStop Corp. $GameStop(GME.US$ and Bed Bath & Beyond Inc. $3B家居(BBBY.US$ , AMC became popular during the meme stock frenzy in 2021.
A short squeeze happens when a significant, short-term spike in a stock’s price forces short sellers to buy shares to minimize their losses. Buying shares to minimize losses leads to a further spike in the price. Currently, AMC has a short float of 24.6%, which indicates another potential short squeeze. Let’s discuss why.
AMC currently has very high short interest due to its poor fundamentals and plans to convert AMC Preferred Equity $AMC Preferred Equity Unit(APE.US$ shares into AMC Class A common stock. The high short demand has caused borrowing fees to skyrocket. Borrowing fees had jumped to more than 750% last week when the pool of borrowable AMC shares decreased significantly.
In March, AMC shareholders approved increasing total shares by converting APE units to Class A common stock. The difference in prices between AMC’s common stock and the APE units provided an opportunity for arbitrage traders to capitalize on the price variance, expecting the prices of the two to be equal once the conversion of the APE units to common shares materializes.
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