AMC Stock Price Falls As Mudrick Capital Sell Millions

Summary:

The AMC stock price has retreated from its high on news that Mudrick Capital has sold its entire stake, calling the stock "overvalued."

The AMC stock price has retreated from its high on news that Mudrick Capital has sold its entire stake, calling the stock “overvalued.”

AMC is last trading at $32.04, +22.66%

Yesterday AMC Entertainment revealed they had taken advantage of the recent rise in its stock to raise capital. Given the performance over the last few weeks, the share sale makes perfect sense.

AMC CEO Adam said: “We have raised funds that will allow us to be aggressive in going after the most valuable theatre assets, as well as to make other strategic investments in our business and to pursue deleveraging opportunities.”

What didn’t make sense was that Mudrick Capital had been the sole buyer of the $230 million equity offering. Astonishingly, they even paid $27.12 for the stock, which was a premium to Friday’s closing price of $26.52.

The new sent the AMC stock price higher by +38% to a new all-time high of $36.72 in Monday’s session.

Mudrick Sells Entire Holding

Mudrick Capital used Monday’s rally to close out their long position. A move that is likely to raise some serious questions at the SEC.

The money manager justified the decision, saying: “AMC’s stock is overvalued, propped up by a recent wave of day-trader enthusiasm.”

We all know the AMC stock price is overvalued. The company is $11 billion in debt and has been crippled by the global pandemic. However, that hasn’t stopped the price from exploding higher over the last few weeks.

Bizarelly, the reason the stock is trading at multi-year highs is because the outlook for the company is so unclear. Short sellers have sold so much stock that it has left the price with only way to go.

I looked at the potential for a short-squeeze in last weeks report. Since then the AMC stock price has more than doubled in just a few sessions.

Now with the news that Mudrick Capital has passed the bag to retail traders it will be interesting to see what comes next.

AMC Price Outlook

Honestly, it’s a coin flip as to where the price heads now. You could argue that the current price is maybe 10x higher than it should be.

However, that doesnt neccessarily mean that it will go down just yet.

Things may be about to get even more interesting towards the end of the week. Some large open positions in options increase the chance of another melt-up in the AMC stock price.

The positions which expire at the end of this week will trigger buying if the price goes higher. Dealers that sold the option positions will be forced to buy increasing amounts of stock the higher it goes.

The biggest positions are at $59.00, $70.00, and $73.00. In normal market conditions, I would write off the chances of getting there by the end of the week. However, this is about as far away from normal as it gets.

This means the short-squeeze may have one last hurrah before the bubble eventually pops.