AMC and APE shares: short sellers continue to increase their positions

  • Short sellers continue to target AMC and APE stocks due to a long list of macro and micro headwinds.
  • An unusually high number of failed deliveries in AMC could be due to naked short selling.
  • Despite the poor performance of AMC and APE stocks this quarter, there is a good chance that we will see another short squeeze.

Figure 1: AMC and APE shares: short sellers continue to increase their positions

Learn more about Wall Street memes: This hedge fund is betting hard against GameStop Stock. Are shorts playing with fire?

Why do short sellers target AMC and APE?

Short sellers continue to build positions in AMC Entertainment (CMA) – Get AMC Entertainment Holdings Inc. Class A Report. and AMC Preferred Stock (MONKEY). According to the latest data from Morningstar, about 100 million shares of AMC were sold short as of mid-September.

That’s nearly 20% of the company’s stock float and significantly more than the number of shares sold short in mid-August (89.1 million).

And about 44 million shares of APE are sold short. That’s about 5.4% of its free float.

There are several probable causes for this increase in short activity:

  • Rising interest rates and less favorable unemployment data are affecting the markets. Naturally, these effects trickled down to AMC.
  • The U.S. Securities and Exchange Commission (SEC) has chosen not to prohibit payment for order flow (PFOF), which means brokers like Robinhood (HOOD) can make additional gains by routing trades market makers. AMC’s retail shareholders are highly critical of PFOF.
  • AMC rival Cineworld, the world’s second-largest movie circuit, has filed for Chapter 11 bankruptcy.
  • The third quarter tends to be relatively low when it comes to new releases in theaters.
  • Investors are concerned about the potential sale of 425 million APE units, which could lead to stock dilution and a decline in the share price.
  • Wall Street analysts have called AMC a “sell” because of its “upside-down” capital structure – there have been a significantly higher number of shares outstanding since the start of the pandemic.

Data delivery failure still suspiciously high

Failed to deliver (FTD) in trading occurs when one of the parties to a trade fails to fulfill its obligations by the settlement date. This often means that the short seller does not actually own the underlying asset they are selling short. Known as “naked short selling”, this practice has been illegal since 2008.

The most recent AMC FTD data made available by the SEC shows that in the first half of September, in three consecutive trading sessions, the number of failed deliveries rose from 1.3 million to more than 2.1 million. This equates to over $12 million in stock value.

Figure 2: FTD data from AMC in September.

Figure 2: FTD data from AMC as of September.

There has also been a significant amount of FTD activity involving APE stocks. In September, there were over 1 million FTD for four consecutive days.

In comparison, You’re here (TSLA) – Get the report from Tesla Inc.which also has a lot of short activity, peaked at just 131,704 FTD daily during the same period.

Figure 3: APE FTD data in September.

Figure 3: APE FTD data as of September.

When the number of FTDs exceeds 1 million, it is likely that the share price of the securities concerned will increase after a period of 35 days.

This is because the SEC gives short sellers 35 calendar days after settlement day to close out the position by buying the undelivered securities.

The essential

AMC shares have fallen more than 34% since the end of August, and APE units have fallen an incredible 66% over the same period.

However, AMC still has a large fanbase made up almost entirely of retail investors. This, coupled with the fact that AMC has managed to start trading in line with its trading fundamentals (unlike most other meme stocks), makes the stock a danger for short sellers. There is an imminent risk of a short squeeze – as the AMC itself mentioned in a recent Form 10-K filing.

Even though AMC shareholders have faced great volatility, it is still risky to bet against the stock. After all, any small catalyst for AMC could trigger a short squeeze.

(Disclaimer: This is not investment advice. The author may own one or more stocks mentioned in this report. Additionally, the article may contain affiliate links These partnerships do not influence editorial content. Thank you for supporting Wall Street Memes)

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