Wall Street traders opting for another AMC rally Business and Economic News
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Some Wall Street traders are betting this week on another massive rally of AMC Entertainment Holdings Inc. and other “meme” stocks, a kind of bet on the options market that would limit their losses, if the retail investors behind the race could prove wrong.
Reuters ’analysis of opportunity data and interviews with market participants, including a Wall Street banker and $ 30 billion in asset manager, have shown that some institutional investors have stepped up to trade in complex options that allow stocks to fall.
The so-called “bear put spread” is also a common bearish option strategy that limits profits.
The higher uses, which have not been reported so far, show how Wall Street is looking for ways to earn an unprecedented rise in retail trade after improving some high-profile funds earlier this year.
“These small retailers are still dominant for sure, but we see big institutions tempted only by prices,” said Henry Schwartz, head of product intelligence at Cboe Global Markets Inc., about opportunities to trade at AMC.
‘Meme stock’
AMC has been in the middle of the second wave of buying stocks of retail investors bought in stock on forums like WallStreetBets on Reddit, and has released a new video on the “meme stock” phenomenon that has sent 1,600 percent of GameStop Corp. in January.
Shares of AMC have risen just over 83 percent in the past week.
Shares are up 2,160 percent this year, and traders have made a direct bet on the loss of nearly $ 4 billion in nursing paper, according to the latest data available from S3 Partners.
When a stock moves as much as last week’s AMC – more than double the price in a single trading session – it raises the price of options.
Usually, movements of this size do not last long, and some professional traders are betting this time as well, which means that the share price will go down, said market participants.
The problem is, they don’t know when that might happen and whether or not they have the resources to deal with retailers. Their power lies in their number.
Minimize risk
Hence the spread of bear put. In the trading strategy, the investor buys a set of put contracts, which entitles them to sell the underlying shares at a certain time at a certain strike price and sell them with another set. a lower strike price valid for the same period of time.
The sale of put options offsets most of the cost prior to purchasing the first set of contracts. If the shares do not fall or are lower than expected, the loss of the seller’s purchases will largely cover the gains of the hedged premium.
The banker, a senior executive at a major Wall Street company, said most of his institutional clients were far from meme stocks, but some began using beish put spreads against them. The New York-based fund manager said he was using his deployment to minimize his risk and reduce costs when he opted for AMC and other meme stocks.
Both asked for anonymity because they were not allowed to speak to the press.
Option trading data shows more complex trades, such as put strategies like spreads. The trades most preferred by trading professionals are 22% of the daily AMC trades, averaging over 13 percent this May, according to Trade Alert Opportunities Analysis.
The data show that the overall options traded on the stock remain driven by retailers. Only about 10% to 15% of the overall volume of AMC options per day was traded in blocks of more than 100 contracts, usually the size associated with professional players.
“It’s hard for institutions to stay away when volatility is so high,” Cwarte’s Schwartz said. “They try to avoid it, but that attracts them.”
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