If you are looking for excitement then AMC stock is the right ticker for you. It’s been a wild one ever since the pandemic started. I have to hand it to the fans, they are the most loyal I’ve seen.
If you are thinking of shorting it outright, you better bring a strong arsenal. You’ve got a fight on your hand.
My conclusion today will upset the AMC stock posse, but it’s an honest assessment of the obvious.
Before we evaluate the business going forward, we have to revisit the past. Prior to the pandemic, AMC stock was already on the skids. Going into 2020, it was already down 82% from its highs. This happened over four years with a series of lower highs and lower lows. This was an indication that investors hated it systemically.
The Pandemic Saved AMC Stock
Then a miracle happened that saved it out of this hideous downturn. Oddly enough, the miracle was the worst-case scenario for the AMC business. The world went into a lockdown, which meant that income went to nil. This lasted a good part of the year, and only recently have they reopened their doors.
This is a rare case where the company broke but the stock thrived. Moreover, movie makers have since found new outlets for their masterpieces.
The movie theaters now have to compete with streaming services. Disney (NYSE:DIS), for example, now releases its moves on Disney+ concurrently or exclusively. Since Disney just reported a successful quarter, this trend is likely to accelerate. Cutting out the middle person sounds like good business for them and bad for AMC.
There will still be demand for special outings, but it’s no longer the place to catch new releases. AMC will need to find new ways to plug the income hole from this.
Shhhh, don’t tell investors that because the stock has never been stronger. From pandemic lows to highs, it rallied 3,300% in six months. In case you missed it, that means it broke its all-time record when things were at their worst. This behavior defies logic and there is no sense of arguing with it.
Trade AMC, Don’t Invest
There is no doubt that AMC stock makes for a great trade, but a very iffy long-term investment. Even when the company says that its stock is too high, the fans pile in some more. Those who love it have 100% conviction – and there is no convincing them otherwise. If you don’t believe me, try criticizing it on social media.
This sounds negative, but it’s not. I am making the distinction for potential investors. First rule of engagement with AMC stock is to not short it without tight risk parameters. Sentiment is as strong as I’ve ever seen it. I remember when the Iomega fans were gun-ho, the AMC “Apes” are at a different level.
Trading it based on the charts is legitimate and can be fun. There are real opportunities short term that are worth pursuing. However, I would avoid investing in it expecting miracle earnings next year. The financials are still a mess. That’s a fact, not my opinion.
Eventually, when the pandemic dust settles, investors will demand more.
Options Can Offer Margins of Error
This is one situation where options can offer alternative trade setups. I’ve shorted it in the past by selling bear call spreads. Unlike traditional shorting, this method offers finite risk. It doesn’t even need a drop to win. I set my levels above current price leaving the bulls room to run. I’ve also gone long AMC stock using credit put spreads – a.k.a. bull put spreads. That is a strategy that also leaves leeway and requires no rally to win.
The modern investor has all the tools necessary to partake in short-term trading. Hopefully, they use logic to avoid chasing a business in trouble, just in case the turnaround fails.
I am confident that the status quo will not provide upside catalysts in 2022 without changes. I am also positive that I will have to deal with a few irate fans after posting this article. For those AMC stock fans, I say that you need opponents to profit.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.
