Shares of theater chain AMC Entertainment Holdings (AMC) have shed 80 percent of their price over the past year as the company has lost its luster as a “meme stock.” One trader sees a further decline ahead for shares.
That’s based on the April $3 puts. With 114 days until expiration, 15,957 contracts traded compared to a prior open interest of 104, for a staggering 153-fold rise in volume on the trade. The buyer of the puts paid $1.43 to make the bearish bet.
Shares recently traded for just under $5, and the stock has 52-week low of just $4.11 per share, so there could be some immediate downside ahead on the retest of the recent low. Shares seem unlikely to rally anywhere near their 52-week high of $34.33 in the foreseeable future, given the current volume of business at movie theaters in general.
In the meantime, there may be further pressure on shares as AMC looks to sell more shares to pay down debt. Currently, the company has about $6 in debt for every $1 in equity.
Action to take: Shares are fundamentally weak, and could get weaker amid new share issuance. That points to a lot of continued downside pressure for shares. It doesn’t make sense to go long now, or at any point until the company’s fundamentals substantially improve.
For traders, the April $3 puts are a big aggressive, as they would require shares breaking to new lows to move in-the-money. But the trade can likely deliver mid-to-high double-digit returns even if the trade doesn’t move in-the-money.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.