Some Wall Street traders are betting against another massive rally in AMC Entertainment Holdings Inc (AMC.N) and other 'meme' stocks this week through a type of wager in the options market that would limit their losses should retail investors behind the run-up prove them wrong.
this past week. The stock has surged 2,160% this year, leaving traders with outright bets against it nursing paper losses of nearly $4 billion, according to the latest available data from S3 Partners.
Typically moves of that magnitude don't persist for extended periods of time, and some professional traders are betting that will be the case this time, meaning the stock price will fall, market participants said. That’s where a bear put spread comes in. In the trading strategy, the investor buys one set of put contracts, which gives them the right to sell the underlying shares at a certain “strike” price by a certain time, and sells another set with a lower strike price valid for the same time frame.
The banker, a senior executive at a major Wall Street firm, said the majority of his institutional clients were staying away from meme stocks, but some had started using bearish put spreads to bet against them. The fund manager, who is based in New York, said he was using put spreads to both minimize his risk and reduce costs as he bet on AMC and other meme stocks.Options trading data shows increased complex trades that involve strategies such as put spreads.
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