AMC Stocks Soar After Reddit Driven Rally

AMC Entertainment was the most-traded stock on Wall Street today, with over 1.2 billion stocks trading hands as the theater chain benefited from a surprise boost driven by amateur investors organized on Reddit. AMC saw its price jump by over 300% during trading on Wednesday, rising from $4.96 a share to $19.90 a share. That boost came despite AMC’s well-documented struggles during the COVID-19 pandemic, as the company has closed theaters in the midst of a slowdown that has caused most movies to delay their major movie releases for months. While AMC recently announced that they had raised over $900 million in funds to stave off bankruptcy, there was no additional news that spurred on today’s price jump. Instead, AMC was a beneficiary of an unexpected surge of interest from amateur investors communicating via sites like Reddit’s /r/WallStreetBets.

So – why did Reddit select AMC Entertainment as the beneficiary of their surprise flex in the market? The movement started as a pushback against hedge funds and investment firms shorting the stocks of several companies, including AMC and GameStop. When a trader “shorts” a stock, they are attempting to take advantage of a future drop in a stock’s value. The trader borrows a stock for a set period and then sells it at the current market value. At the end of the fixed period, they purchase another share of the same stock and return it to its original holder. The trader makes money if the second stock purchase was at a lower price than the original, and they lose money if they had to purchase the second stock at a higher price.

Both AMC and GameStop have highly shorted stocks, and the Reddit community /r/WallStreetBets took notice. Investors on that site rallied around GameStop over the past few weeks, driving its price up from $14.69 a share at the start of January to nearly $350 a share. Because of the rapid increase in price, the stock had a “short squeeze,” which is when short sellers scramble to buy shares back and recover at least a portion of their losses, and in turn drives demand and prices even higher. As more and more amateur investors took notice, companies like AMC, Nokia, and BlackBerry all saw major jumps in sales as investors tried to determine the next stock that would see its price skyrocket based on the activity of a single Reddit community.

As of press time, AMC’s stock price has dropped slightly after hours to just under $16, likely due to traders dumping their shares after receiving an unexpected windfall. Other theater chain companies saw more modest boosts in their share prices, and it’s possible that today’s stock surge kickstarts a major comeback for theater chains after a horrendous 2020. Federal regulators are already looking into the furor around AMC and GameStop’s dramatic price rises, and /r/WallStreetBets has unexpectedly shut its doors to outsiders. It seems that this story is far from over.