Since there is a lot of misinformation out there, I must do my part of correcting a few things in people’s thinking.
Of course this is about the “sticking it to the hedgies” and the “to the moon” mentality of the new found gamblers of Wall Street.
Regarding the run AMC experienced upon breaking above 20.
Those buying the call options, have to think about who is at the other side of their trade. Who has enough funds to be late to the party and still clean up everything?
The big banks. Seldom hedge funds. Selling options naked can be very costly.
But when a frenzy builds up and a break becomes imminent, Goldman Sachs and the likes buy the underlying asset to hedge their risk (they see the arriving orders, and can take actions accordingly) – and here is the important part: they overdo it, making the break have an even larger effect plus make some change with it as well.
The losers are keep on buying, adding to their position aiming for unattainable numbers. But Goldman has more than enough covers, and whilst they were aiding the move at its beginning, they are able to sell the calls / shares in the future for the additional demand covered, knowing full well that the price is going to peak, reverse and collapse swallowing the purchasing cost of the call options expiring out of the money from the retail.
What is important to understand here is that they have the upper hand every step of the way. They play along by giving you the fills, they make the break out happen, and they make the break out fail (wherever the demand drops below the frenzy level).
Kiss your AMC goodbye. Hodling is suicidal.
What was different about Game Stop is that they were not able to buy the underlying shares, for the demand exceeded the underlying float by an extra 40-50%, meaning there were no shares at all, regardless of how big of a bank you were. This squeeze was a lesson and they are not likely to fall in the same trap again.
Find a game where you can have an edge against the bank.