AMC Breakout?

Hi Shoppers,

AMC Entertainment (Ticker: AMC) is back on the “stonks” radar.

A look at the chart shows it broke out to the upside yesterday.

It closed at $16.41 — and I think it could trade back up to $20 or more.

Looking at the calls below … wow!

There is massive call skew, which means the out-of-the-money calls are trading at much higher implied volatilities than the at-the-money calls.

You know what that means? It’s a perfect setup for a cheap call vertical because I can buy a lower volatility and sell a higher volatility.

Take a look:

Not only is there a massive call skew, which you can see by the ascending implied volatilities as you go higher on the strike prices, but check out the volumes and open interest numbers.

There is a ton of interest in this stock.

With these calls bid up like this, there could be fear of a short squeeze here. 

A short squeeze happens when short sellers are forced to buy in their stock, or cover it, as it trades higher … causing the stock to trade higher still.

If AMC opens higher today, I will buy the June 18 17-strike calls with an implied volatility of 167.64 and sell the June 18 27-strike calls with an IV of 215.09.

That is a huge difference between the two implied vols.

I will pay up to $1.65 for this ten-point spread with 25 days until expiration.

I think AMC is going to take off and I will hold onto the gains and sell at $3 and higher.

If AMC doesn’t trade higher, I will take my loss at $1.10.

I think this is going to be an exciting trade, maybe as exciting as Lolla — minus the mosh pit.

Thanks for Reading … See You Next Tuesday!

Licia Leslie

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