Who Is Buying AMC 145 Calls? (It May Not Be Who You Think)

If people like me still used ink rather than pixel to write, it would be safe to say that a lot of ink has been spilled discussing meme stocks like AMC Entertainment (AMC) and GameStop (GME). In just the past week and a half, I wrote about the topic herehere, and here and discussed it in the media multiple times. The action in meme stocks lends itself to multi-faceted discussions regarding short-selling, market psychology, and corporate behavior, among other topics. There is an angle that can seemingly interest anyone. Yet I haven’t fully addressed my favorite aspect of the wild trading – options. 

There is an anomaly that many have spotted in AMC options. The lines with the highest volume and open interest are the $145 calls. Bear in mind, the stock is about $55 as I write this. The stock would have to rise over 2.5x for those calls to be in the money. The easy interpretation for the high volume would be that there are some really crazy bulls out there. While that is undoubtedly true, I believe that the real motivation is more complex and actually related more to bearishness than excessive bullishness.

It is my belief that much of the activity is spurred by options traders who want to short the stock or its calls but can’t do that on an unhedged basis. A Bloomberg story on Thursday clarified my thinking on the topic when it stated that Jeffries’ (JEF) prime brokerage “will no longer offer custody on naked options in GME, AMC and MVIS [MicroVision Inc.].” It is my understanding that JEF is not alone in this practice. Buying the calls with the highest available strike is a way around rules of that type. Remember that shorting options in an activity with a defined initial profit and the potential for nearly unlimited losses. If a trader buys a long call against a short call position, no matter how ridiculously far away the long call may seem, it defines the maximum loss for the trade.

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