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AMC Stock: Beware Of These Risks

After a bearish streak, AMC stock showed signs of life on Thursday, including in after-hours trading. Following the spike in share price, Wall Street Memes discusses the risks surrounding AMC.

AMC stock  (AMC) - Get Report was the main topic of conversation between Redditors and apes this Thursday, July 15. The stock finally had an up day, and quite a solid one: up 8% by the closing bell and another 9% in after-hours trading, at last check.

“Hodlers” continue to hope that, with short interest still high and rising in the past days, even a modest rally can snowball into a short squeeze. But there are risks to be considered here as well.

(Read more from Wall Street Memes: AMC Stock: A Few Reasons To Keep Holding)

An overview of the key risks

Managing risks is traditionally a key pillar in successful investing. Betting on AMC, GameStop  (GME) - Get Report or other meme stocks without care for downside exposure can be a bad idea.

Investment risks can fall into one of several buckets: e.g. macroeconomic, business-specific, technical, and psychological. In the case of AMC and GME, the risks tend to be technical and psychological in nature, as macroeconomic and business factors do not play much of a role in the “meme thesis”.

Below are some of the main risks to consider in a stock like AMC:

  • The dry powder war: as AMC share price declines from a peak of $63 in June, short sellers rake in the profits. In doing so, bears can better afford to hold on to their short positions. To combat selling pressures, apes need to keep demand for shares afloat by committing more capital to the cause – precisely when their losses mount. Those who bought AMC after the early 2021 short squeezes are probably underwater and may be more reticent about buying more shares to reverse negative momentum.
  • Paper hands: after earning their “chicken tendies”, it is tempting for some traders to lock in gains and walk away – especially during a bearish period that puts the MOASS (mother of all short squeezes) into question. Risk-averse investors could pose a risk to diamond hands – as the Twitter poll below suggests.
  • Conspiracy theories galore: the AMC long vs. short battle often involves “alternative facts” spread around social media. Whether conspiracy theories prove accurate or not, the psychological warfare alone can discourage some from participating in the meme attack, or at least increase volatility in share price.
  • Company policies: as a reminder, shares of equity represent part ownership of a company. If AMC chooses to issue stock to strengthen its balance sheet (something that is has done in the past, but that apes have convinced the management team not to do again recently), the awaited short squeeze could fail to materialize, as the outstanding share count increases.

(Read more from Wall Street Memes: AMC Stock: A Test For Diamond Hands)

Understand your risk tolerance

As recently mentioned, meme stocks are extremely volatile and pose substantial risks (and gain opportunities) to investors. Stocks like AMC and GME can either quickly rise by 100% or much more or drop to zero.

Apes seem convinced that there is only one thing to do: “hodl” AMC until it reaches the moon. But it is up to each investor to recognize the risks and make the best decision for his or her portfolio.

(Read more from Wall Street Memes: AMC Stock: Hot Topics On The Planet Of The Apes)

Twitter speaks

We have recently asked on Twitter: which of the below would be most important for a potential short squeeze in AMC to happen? Leave your opinion below and follow @WStreetMemes!

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)