AMC Stock Surges 150% as Short Sellers Lose $1.3B This Week – So Far
Image courtesy of 123rf.

AMC Stock Surges 150% as Short Sellers Lose $1.3B This Week – So Far

Hedge funds continue to face significant losses as their plans to short AMC fail.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

As of May 28, AMC’s stock has exploded to prices north of $31 (at press time). Just seven days ago it was worth $12.04, making this a staggering 150%+ increase in value. As a result, short-sellers are estimated to have lost $1.3 billion so far. However, with such an uptrend, there is no saying where exactly their losses will stop.

In a similar way to GMC, AMC was a stock that corporate short-sellers had been heavily betting against. , and so news of its rising prices is worrisome for them. This acts as a cautionary tale for institutions that attempt to earn money on the failings of other companies. Yet many indications suggest that certain hedge funds—and illegal practices—directly lead to the failure of such companies.

That’s why retail investors have banded together, causing the price of AMC to soar:

AMC stock surges by 149%
Image Courtesy of TradingView

The Ethics of Naked Short Selling

It is the five-year anniversary of Harambe’s death, an event that managed to gather press from around the world. It is hard to explain the cultural significance of this ape, but what is fascinating is that his presence is still felt online. Despite dying half a decade ago, a Reddit community of retail investors who refer to themselves as “apes”, often speak about Harambe.

He has become a symbol of people being stronger when they band together, which is in large part due to his name, which means “working together, pulling together, helping each other” in Swahili. This is what the self-proclaimed “apes” on Reddit communities such as r/SuperStonks and r/AMCstock have been doing– working together to reveal heavily shorted stocks, such as AMC and GMC, in an attempt to restore justice to the economic landscape. 

Meme about Harambe and AMC stock, found from r/AMCstock
Image Courtesy of r/AMCstock

The retail investment communities behind AMC’s rally are led by the belief that hedge funds such as Citadel and Melvin Capital have been naked short selling, an illegal practice of selling short shares. This is much different from standard short selling, which is the act of betting that a certain stock will fall in price

Not only is naked short selling illegal, but it is highly unethical: a 2008 paper from economists James J. Angel and Douglas M. McCabe, called naked short selling an abuse of power, arguing that:

“[N]aked short selling, which involves the exploitation of loopholes to prevent delivering shares that have been sold, is an unethical practice that deprives shareholders of voting rights and lending revenue and creates a tool for stock price manipulation”.

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Retail Investors Rejoice

There is only one problem: we know hedge funds shorted AMC (and GMC) but proving that a company is indeed naked short selling is notoriously hard to do. Nevertheless, this is what many currently believe, and have laid out quite extensively.

For instance, it is in part due to GMC’s community of retail investors that GameStop was able to wipe its debts and enter the NFT market. In the same sense that GameStop is an iconic company in the gaming world, AMC is iconic in the field of cinema, as it represents the largest theatre chain in the globe. One reason why hedge funds shorted AMC was because the cinema industry has been in decline for a while, and many thought COVID-19 would be the final nail in the coffin.

However, this AMC rally proves that cinema is far from dead. Cinema is a large part of contemporary living, and one of the most accessible forms of art. And another, newer form of art is self-proclaimed “apes” who band together to fight against unethical stock market practices.

AMC’s uptrend represents one of the most fascinating displays of individuals rallying together to overcome harmful Wall Street practices. With the losses at hand, a worldwide community of “apes” has successfully managed to bring corporate figures to their knees. It will be interesting to see how the situation unfolds as we enter the month of June.

How much do you think short sellers will lose overall? Let us know in the comments below.

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