Trading Nation

AMC Stages Reversal After Stock Sale – Here's What Five Experts Anticipate Next

Scott Olson | Getty Images

AMC Entertainment staged a reversal on Thursday afternoon after a sharp decline earlier in the day.

The meme stock had initially sold off after the company filed to sell 11.5 million shares of its stock. The company also warned investors in the filing the current stock price is "unrelated to [its] underlying business."

Five experts weigh in on what's driving the stock's market action.

Gunjan Banerji, markets reporter at The Wall Street Journal, has seen exponential interest in options trading in the wake of the GameStop and AMC surge.

"The options activity is a key, key ingredient here. I've been following this market for a few years, and I've never seen this much interest in options trading. Options activity on AMC hit a record high yesterday, so that's above the levels that we saw earlier in the year when the GameStop frenzy was first starting, and it shows you how this movement has grown and people are looking to lottery-ticket bets on AMC. They're trying to double, triple, maybe even quadruple their money within days and even hours through these call options."

Amy Lynch, founder of FrontLine Compliance, is impressed by the language used on AMC's behalf to warn investors.

"One thing I can say that they did that was really smart was when they put out their 8K … they were disclosing to investors that this is a high-risk investment — they could lose all of their money, they should not be investing or buying these shares because of the volatility. So they really did try to cover their bases as far as their disclosures to investors in this offering. That was a huge, big piece of disclosure for all of those Reddit traders out there to basically warn them and say, listen, you should not be purchasing these shares at these prices, you could lose all of your money. The SEC is very concerned about that and, of course, their mandate is to protect the retail investors, so they like to see those disclosures. I think that the fact that they put that language very explicitly in bold print in their filings does go a long way to protect them with this offering."

Joe Moglia, former chairman at TD Ameritrade, wants to educate individual investors.

"My biggest concern is what's going on with the individual investor, though, and that they've got to be able to understand when they use leverage what that really means. Leverage on the way up is a great thing, leverage on the way down can rip your arms off. And I think the Robinhoods of the world ... have got to do a better job of making sure we educate the individual investor who likes to day trade and make sure they understand what the risks are when the market starts to turn around and how to handle it."

The SEC is looking for false statements of any kind, according to John Stark, former SEC Office of Internet Enforcement managing director.

"When these kinds of headlines occur, there's a team of SEC enforcement people already investigating. They'll probably put this information into the one they've already been investigating with the GameStop activity. What they do is they'll look for false statements. The way the SEC can bring cases here is to find somebody who is uttering some sort of false statement amidst all the chaos and bedlam of those Reddit boards. I think that's sort of trying to find a firefly in a tornado. I don't think it's a very easy job. I've had to do that back when I was chief at the SEC, and it's very challenging."

Aswath Damodaran, professor of finance at NYU Stern School of Business, says AMC is handling it better than GameStop.

"I think at the moment there is a feedback loop from the price going up, and AMC, I think, is playing this game a lot better than GameStop is. I think they're taking advantage of what might be an opportunistic moment of raising capital because they're in a business that's in transition. I mean, you look at Amazon buying MGM for $9 billion, you see AT&T exiting the business. Clearly the business is ripe for change. AMC owns a niche of this business that is less critical than it used to be but still a critical cog in the wheel."


Copyright CNBC
Contact Us