The Meme Stock Smart Money Is Betting Against

Hey Traders,

As much as I appreciate retail traders … when it comes to my own trading, I’m a little more of a ‘conformist’ than a ‘meme stock rebel.’

Sure, I see the ‘beauty’ behind the shenanigans Redditors have sparked in the market this year … truly, it’s unique.

However … I personally like to see where the Big Bucks traders are placing their bets. I tend to believe that these institutional traders are “smart” money, even if only because they have a huge amount of resources at their disposal that most retail traders simply don’t have access to.

My Robinhood Trader program actually was built around this … my proprietary Gamma Radar and order flow monitoring technology lets me see where retailers are rallying … and where Smart Money is betting against them, so I can figure out who I want to follow … or fade.

And if you happen to be a Robinhood Trader member, you might recognize this meme stock as a frequent appearance on my watch list and trading roster as of late …

It seems like I’m not the only one waiting for this meme stock to head lower.

With the exception of GameStop (Ticker: GME), AMC Entertainment (Ticker: AMC) has arguably been the foremost meme stock of the year.

Prior to the meme stock frenzy of 2021, AMC was having a rough go, with the shares hitting as low as $1.91 earlier this year.

Then, as we all know, the retail crowd targeted the theater stock for a short squeeze, noting exceptionally high short interest in the shares.

AMC spiked to $20 before coming back down to earth … only to blast off again earlier this summer!

Chart courtesy StockChart

Now, call me a cynic, but I just don’t see AMC holding on to all this upside. Even prior to COVID, AMC was in the middle of a longer-term downtrend, and the shares were churning near the $10 mark before the pandemic hit.

And with buying volume waning in recent weeks, I’m thinking the jig might be up, and AMC might be getting ready to return at least some of its meme gains and head closer to a more fair valuation …

And it seems like at least one Smart Money trader agrees with me, because they just placed a big bet on some more AMC downside heading into August!

This trader opened a spread yesterday at noon, purchasing 9,000 contracts of the AMC August 30-strike puts for $3.87 – that’s a huge cost of $3,483,000, and accounts for 900,000 AMC shares!

However, it seems they aren’t anticipating too much of a fall, as this same trader was able to cover part of their costs by selling 13,500 August 20-strike puts for $1.17. This sale netted them a $1,579,500 premium, and brought their outlay requirements down to “only” $1,903,500.

I find this rather interesting. It seems that this trader thinks that AMC does have some staying power, and believes the shares will hold above their pre-COVID highs – at least for the next few weeks.

What also strikes me about this trade is that the trader bought and sold a different number of contracts, making this different from a typical put debit spread — instead, it’s a ratio spread, where contracts are bought and sold in a different ratio. The general premise is the same, but it can dramatically change the risk factor of a trade.

For example, in a best case scenario, this trader could walk away with $6,570,000 in profit …

But should AMC drop harder than expected, their downside risk is significant, specifically due to the higher number of puts sold than purchased. They risk being assigned the difference in shares (4,500 contracts, which covers 450,000 shares!), which could result in significant losses.

This trader will certainly want to watch their trade in the weeks ahead, and hope that AMC takes a dive … but not too hard!

Your Only Option,

Mark Sebastian

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