AMC Stock: Brace For The Mother Of All Short Squeezes
BERNARD ZAMBONIN AND DANIEL MARTINS, 01 July 2021
Reddit forum discussions and coordinated trades have been rooted in the community’s disdain for so-called “toxic market participants”. These toxic players tend to be hedge funds and a few others on Wall Street who make sizable bearish bets against certain stocks through naked shorting.
This practice, considered illegal after the subprime crisis in 2008, consists of borrowing shares to sell short, but without these shares existing. This is only possible in the very short term and due to technical loopholes in trading, as transactions take days to clear the system.
The power of meme mania
Through the efforts of the “apes” community, mass demand for stocks in which “toxic players” held naked short positions forces them to cover their losses. To do so, shorts must buy shares in a hurry to avoid regulatory issues and margin calls. The strategy has worked brilliantly for the apes.
Since the beginning of meme mania, shares of GameStop (GME) and AMC (AMC), the most relevant in the movement, have climbed by more than 1,000% and 2,000%, respectively. With the early success, meme mania gained strength as market interest in these stocks skyrocketed.
