One cannot spend the last two years in the markets without knowing what happened with the “Meme Stocks” led by the AMC and GME shareholders. Last year, riding on the coattails of mad money printing from the feds, a few stocks encountered a perfect storm and squeezed up far beyond what any of us could have imagined. In roughly 6 month periods, AMC went from $1.91 to $72.62, and GME went from sub $4 to $483.
Today they closed trading at $16.54 and $146.64, respectively.
Also today, #AMC500k was trending on Twitter, with nearly 100,000 hashtag tweets at one point:
Yes, they are saying $500,000 per share of AMC. As in, a price increase of just $499,983.46 per share, an over 30,000% increase. They are probably not many of them that are serious about that price, but I heard from true believers back when #AMC100k was trending in the past, such as this one:
Of course, I had pointed out to him that the entire stock market cap was about $53 trillion near it’s peak (it’s closer to $40 trillion now). AMC has 515.5 million shares, so at $100,000 each thats a $51.5 trillion market cap for a movie theatre business, more than the entire stock market. Yeah, that sounds about right. Why not quintuple it to 500k? I’m waiting for a Million actually.
Of course, in a super squeeze, which both companies have been through, fundamentals take a back seat, he objects. Company fundamentals, not fundamentals of the entire stock market. That is an absurd leap they have never explained.
And why should they, it’s obviously desperate effort to re-pump to new highs, either to make more easy money or let the bag-holders escape their losses. But my friend David (follow his substack!) reminded me of another motive: somebody is making a killing writing tens of thousands of absurdly out of the money call options and banking the premium.
Last January, open interest on $140 calls expiring 1/21/22 (the highest priced contracts availible) increased from 7,822 to 10,919 throughout the month even as the the stock slipped from $28 at the beginning of the month to $18 three weeks later.
Go through any future dated contracts on AMC now, and the open interest on the furthest out of the money call option is typically the highest. 1/20/23 calls for $145 sit at 68,006 contracts open as of today. Closing at $0.39, the market cap for those contracts sits at a cool $2.65 million. And that’s just one contract price on one of 12 dates available.
Same story at GME: 1/20/23 calls for $950 (!) currently sit at 30,505 open contracts with a closing price of $2.91 today, a market cap of $8.88 million.
It’s probably easy money at these absurd levels, but writing naked calls is extremely risky (limited profit but unlimited loss potential), and given the irrational spikes that have repeatedly occoured in the stocks, you would have to hedge by also owning the stock or even further out of the money calls. That takes a lot of money, but it’s a safe way to churn passive income by simply waiting.
Ironically, the option writers are problably the hedge funds and market makers that the “Meme stock” crowd loves to hate… and they are the ones paying them! Makes you wonder, how many of those profiting from the premium are encouraging the craziness in social media? It’s getting old, but there’s no end in sight.
Great research! AMC and GME serve a useful purpose tho. We will know when the real crash is here if they go down with the ship