They’re back. I’m referring to summer blockbusters as well as the throngs of moviegoers enjoying them on the big screen. But if you’re an investor, the price of admission at AMC (NYSE:AMC) could be costly to your portfolio’s health. Let’s explore what’s happening off and on the price chart, as well as a way to remain calm in AMC stock no matter the thrills and chills sure to follow.
For Americans, the Memorial Day holiday is the unofficial start to summer. And this year it also marked a welcome chance for a return toward normal at AMC and the country’s largest cinema chain following 2020’s pandemic-shuddered theaters. And came they did.
Popcorn-worthy fair A Quiet Place Part II shattered box office expectations with its $47 million haul. Meanwhile, Disney’s (NYSE:DIS) hybrid release Cruella proved a worthwhile hero in tallying up roughly $21 million from theatregoers. In total, AMC’s roughly 8,000 theaters nationwide helped overall ticket sales reach nearly $80 million and largest takedown since the pandemic’s villainous tendrils overtook cinemas last March.
AMC Stock and the Story
It’s great news to be sure. In fact, you could call the weekend “an unqualified success” as one Paramount exec described the results. “Pivotal” or “flat-out wrong” were other choice descriptions for those warning of the cinema’s own end-of-days over the past year.
But today, the price of admission for investors buying AMC is a great deal riskier. It’s a comeback story with little of the underdog thingamajiggy left in shares.
Today and up another 16% or so, AMC has gained just over 1,300% year-to-date. The spectacular performance, of course, has been anything but a secret. Vilified bearish shorts have gotten crucified at the hands of swashbuckling, short-term retail traders operating under the cloak of Reddit’s Wallstreetbets.
But it would be a mistake to sugarcoat the score in a volatile AMC stock, which has proven a trading vehicle for the quick and the dead in 2021.
AMC’s Monthly Price Chart
Source: Charts by TradingView
Today, a rally over the past week has left AMC’s January’s short-squeeze thrill ride and now, even it’s 2017 all-time-high in the proverbial rearview mirror. The better news and, if we’re to trust the trend is our friend, a monthly chart breakout unobstructed by resistance is there for the taking.
The bad news right this moment and following gains of as much as 200% in the past week, shares of AMC are overbought. The stock is currently well-above its monthly Bollinger Band and stochastics is trading through the 80 level.
Also, with the rally manufactured by bulls famous for their shorter-term exploits and appreciating February’s dramatic post-squeeze plunge, buying AMC today isn’t without elevated risk.
How to Exploit AMC Stock Volatility
So, what’s a bullish investor to do? Wait for the pullback? Believe it or not, that may have already happened Friday. Shares did crater more than 38% intraday off their high. As well, sometimes overbought conditions beget more of the same and to significant advantage before finally capitulating.
One smart way to navigate those unknowns is to purchase AMC stock as part of a collar strategy.
The limited and defined risk spread profits from rallies and limits investors’ downside exposure without the guesswork. What’s more, it’s a terrific way to exploit AMC’s volatility.
When shares are trending higher collar investors can make future adjustments to continue trading with the rally. Conversely, the spread can be used to accumulate shares on weakness. This allows investors to remain calmly-positioned for the next blockbuster move in AMC stock. Today, one collar combination which suits those purposes is the August $25/$50 combination.
On the date of publication, Chris Tyler did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.