Shares of AMC Entertainment were sent surging above $30 on Thursday, after it was revealed that a major UK-based hedge fund has made a bet against the pandemic-stricken cinema company.
According to the Financial Times, which cited investor letters, Odey Asset Management, a hedge fund that manages about $4.1 billion and was founded by Crispin Odey, has recently taken a short position against AMC via a portfolio managed by James Hanbury. In the letter, Hanbury told investors that the current surge in meme stock trading has “created some major distortions,” and has given rise to “compelling short opportunities.”
Indeed, Odey is likely correct in theory, because the price of AMC has largely been influenced by retail investors coordinating their efforts via online forums such as Reddit rather than focus on fundamentals, but it is that kind of behaviour that have proven challenging for hedge funds. Although short-selling can bring significant gains when stocks tumble, losses can be unlimited as positions are often difficult to exit when a squeeze occurs.
With the subsequent rebound in AMC, Odey’s short position announcement could put the hedge fund on the same list as other not-so-fortunate hedge funds such as Melvin Capital, which lost as much as $6 billion during the initial GameStop squeeze. However, for the time being, Odey is appears to be getting the sweeter end of the deal, as the short position against AMC has been one of his most successful yet, making significant returns in July as AMC shares cratered from $57 to $37 by the end of the month.
Information for this briefing was found via the Financial Times. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.