What’s going on with AMC (NYSE:AMC) stock right now? Earlier today, shares of both AMC and GameStop (NYSE:GME) were momentarily halted for about five minutes due to volatility. Now, it seems that the meme stock craze has returned.
Currently, this meme stock is up 4% for the day. What’s more, AMC stock is up more than 60% for the past five trading days, with fans calling for a short squeeze.
Here’s what investors should know.
Is AMC Stock Due for a Short Squeeze?
Right now, AMC has a short interest as a percentage of float of 20% based on recent data from March 15. As a result, the shares sold short would take 2.2 days to cover, according to MarketBeat. Short interest data is released twice a month, usually on the 15th and the last day of the month.
When it comes to short interest figures, 20% is high. So, a short squeeze situation certainly seems possible. After all, AMC’s positive price action over the past five days may have been due to short sellers covering their positions and buying AMC stock.
The movie-theater chain’s run upwards began on March 21. That means a short squeeze may have already occurred.
Is AMC Due for a Gamma Squeeze?
On top of this, Wccftech reports that a gamma squeeze may be in the cards. The website says demand for AMC call options is currently the highest it has been since last June. As the demand for an option escalates, the implied volatility (IV) and price of that option “also generally increase.”
When a trader or investor purchases a call option, a market maker is usually on the other side of the trade. The market maker must be willing to sell 100 shares to the option purchaser if the stock price reaches above the strike price. If the price of the stock rises to near or above the strike price, then the market maker faces potential losses. To insure against this, market makers buy shares of an underlying stock to hedge their positions.
CMC Markets defines gamma as “the change in delta for each dollar the stock price moves.” When the price of a stock approaches its strike price, delta will increase as well. As a result, market makers must hedge more against their positions the more the stock approaches the strike price. This can create a “vicious feedback loop” if options are traded in high demand, driving up the price of the stock in the process.
Moving forward, investors should certainly watch AMC stock with this in mind.
On the date of publication, Eddie Pan did not hold (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.
