Skip to main content

What Happened With AMC Stock On The APEs Trading Debut

On a day of high trading volume and volatility, the debut of APEs on the NYSE was marked by trading halts. Here's what investors need to know.
  • AMC stock had a roller-coaster day as APE debuted on the NYSE.
  • AMC and APE were hit by a flurry of trading halts, signaling high volatility in both stocks.
  • More volatility should lie ahead for AMC in the coming weeks as investors digest the new APE initiative.
Figure 1: What Happened With AMC Stock On The APEs Trading Debut

Figure 1: What Happened With AMC Stock On The APEs Trading Debut

(Read more from Wall Street Memes: AMC Stock And APE: Are Short Sellers Using Synthetic Shares?)

Why Did AMC Create APE?

Announced during the company's second-quarter earnings call, AMC Preferred Equity (APE) units are a special dividend for existing AMC Entertainment  (AMC) - Get Free Report shareholders.

But if the company chooses, APEs can also be used to write down debt, for mergers and acquisitions, and to raise cash through stock dilution.

It's worth noting that as long as AMC and APE shares remain separate, there will be no dilution of AMC's stock float. However, this may change if shareholders vote to allow APE shares to be converted into AMC shares.

Finally, APEs also have a share-counting feature and should clear up AMC shareholders concerns that the stock has been manipulated by short sellers using synthetic shares to cover their short positions.

AMC's management called the APE initiative "one of the most significant developments of the year."

Through the issuance of APEs, AMC may have found a clever way to keep the hype around its stock high and prevent any massive drops in the price of its shares.

What Happened to AMC's Share Price?

On August 22, AMC Preferred Equity units began trading publicly on the NYSE. The share price of AMC's common stock was divided into two parts. Thus, a total investment in AMC equals the sum of the share price of AMC shares plus APE shares.

AMC closed the August 19 session at $18.02 per share. Because the split occurred after the market closed, APE started the August 22 trading session at $6.95, and AMC stock opened at $11.33. Then, the total investment in AMC (the sum of the two equities combined) opened the week's trading session at a brief high, with a share price of $18.28.

So a quick look at AMC's stock chart at the beginning of the August 22 trading session would have indicated that AMC dropped nearly 40%, from $18.02 to $11.33 — disregarding that $6.95 was given away to APEs.

This caused unwary investors to panic.

Throughout the day, AMC's stock price was a roller coaster. It started out up nearly 10% in a bullish reaction to the debut of APEs but ended Monday's session down 7%, at a share price of $10.46.

What Happened to APE’s Share Price?

As for APE, it made a very bullish debut in the first hour of the August 22 trading session, rising nearly 25% to hit $8.74 per share. However, throughout the day, APE lost momentum and closed at $6 per share, a 13% drop from the beginning of the trading session.

Combining the initial investment in AMC (common shares plus preferred equity units), the movie chain's shares fell about 20% over the course of the day.

However, investor sentiment surrounding APE was confirmed by its trading volume. About 149 million AMC shares and 108 million APEs were traded on August 22.

This caused volatility halts, leading AMC trading to be blocked three times during the session and APE to be halted an incredible 10 times.

What Are the Next Steps for AMC?

It's expected that volatility in AMC and APE will heighten in the coming weeks as investors digest the new initiative taken by CEO Adam Aron and his team.

Meme stocks had a bullish streak in July and August in line with a sharp broad market recovery. This caused short sellers to lose millions of dollars and lifted stocks like Bed Bath & Beyond  (BBBY) - Get Free Report to the heights of GameStop  (GME) - Get Free Report and AMC.

Figure 2: AMC, GME, BBBY and SPY trading performance in a 3-month period.

Figure 2: AMC, GME, BBBY and SPY trading performance in a 3-month period.

However, the pause in Bed Bath & Beyond's rally caused by the sale of Ryan Cohen's nearly 10% stake in the company sent a bearish message to meme investors. GameStop and AMC have plummeted by the double digits in the last five days.

Even if they are still super-volatile, meme stocks continue to defy the analysis of the so-called smart money.

And we'll likely see triple-digit rallies in meme stocks again, thanks to massive short-selling activity.

(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)