Will AMC Keep Going Up?
Alpha Letter is a newsletter that gives readers investing ideas across different asset classes and strategies. You’re currently subscribed to the free version, which includes ideas that should just be viewed as starting points for your own research. To get out in-depth analysis on stocks we recommend, subscribe to our premium newsletter here.
In this edition of the Alpha Letter, we cover:
Stocks & Options: Will AMC keep rising? Also take a look at some other movie theater stocks
Dividend Growth: This mid cap investment bank just increased its dividend 33%
But first, a word from our sponsor:
The Engine Disrupting A $400B Addressable Market
Internal combustion engines have powered our cars, motorcycles and planes for 150 years, but their basic principles haven’t changed much since the days of Henry Ford. Loud, heavy, and inefficient–surely, there’s a solution that’s not just heavy batteries that require recharging with electricity generated by the burning of fossil fuels?
Enter LiquidPiston – the company revolutionizing vehicle efficiency and electrification by reinventing the internal combustion engine.
Their X-Engine platform can scale to drive a tractor or locomotive, but also be compact and light enough to power portable equipment and weight-sensitive systems such as Unmanned Aerial Vehicles. It’s up to 10X smaller and 30% more efficient than its bulky, noisy, gas-guzzling counterparts.
That means longer travel times, lower fuel costs and greater efficiency for all kinds of vehicles and equipment – including unmanned VTOL aircraft and portable generators used by the U.S. military. In fact, LiquidPiston engines have already garnered $11 million in contracts and investment from the U.S. Department of Defense and others.
Get in on the action and invest in LiquidPiston today.
Stocks & Options
Let’s start with the big story from Tuesday: AMC
AMC popped 22% on Tuesday, breaking above $30 again.
AMC options were incredibly active again, just like they were last week. AMC was the fourth-most traded name in the options market in terms of total premium traded. Total premium was $813 million for AMC Tuesday (the highest in the market was SPX at $1.7 billion).
Here is how that option premium broke out, according to the Options Matrix.
The most active call was the $35 expiring this Friday (June 4th). It’s no surprise that AMC bulls are looking to the out-of-the-money calls to profit from AMC’s rise. Right now, we are seeing a smaller-scale version of the GameStop squeeze from January in which every single OTM call printed money for days on end.
Will AMC keep going up?
Nobody knows for sure, especially with these huge short squeeze rallies. GameStop went up several hundred percent after most “experts” were certain the stock had exhausted itself.
While it’s impossible to tell for certain what’s coming next, I think the best strategy is to look at the option flow for clues. The option flow doesn’t always tell you where a stock is going, but in some cases it can give you a great clue.
For example, we noticed that AMC’s option flow hinted at a huge rally all the way back on May 11 in our options newsletter.
Option activity has died down a bit compared to Thursday and Friday of last week, but volume remains high. Total option premium traded in AMC last week was well over $1 billion on multiple days, so it’s notable that option activity has fallen considerably since then.
The put/call ratio is still very low at 0.36, which is normally a bullish sign. However, things change a bit after a large rally. Call volume was extremely high last week, meaning there are large amounts of call options still outstanding.
Therefore, high call volume after a large run-up isn’t as bullish as large call volume when the stock is doing nothing. A lot of the activity could be call holders unloading positions at increasingly-lower prices.
This isn’t a certainty in this situation, but it’s a scenario to keep in mind.
To figure out if that’s actually happening here, I checked the prices of weekly calls. If prices of those calls fell during the day, the scenario I described above could be happening. In other words, it would mean that the high call volume is actually call holders trying to unload their calls at lower and lower prices, which would actually be bearish.
Here is the chart for the $40 calls expiring Friday, which are actually pretty close to in-the-money based on Tuesday’s after-hours trading.
The calls fell off after Friday’s peak IV levels, but the prices have remained fairly steady since that decline. This doesn’t give me much of a bearish or bullish signal, so I will keep digging until I find something that informs my opinion either positively or negatively.
Speaking of which, I urge AMC traders (and traders of any other stocks) to follow a similar process. Far too many people will remain bullish long after it makes sense to do so. That’s how people convince themselves to buy GameStop at $450 and end up losing 50%.
You should not be bullish forever, especially after a 5,000% run-up in a few months. Rallies like that can’t be sustained without a sharp drop on the other side as people take profits. If you’re a short-term trader, you should have a process for looking at option data, the trade tape, and sentiment to inform your outlook on the stock.
Now back to my AMC analysis.
IV is getting crushed over the past few days. Even though AMC is up since Friday afternoon, the calls are in the same spot. This tells me not to buy calls, as I’ll likely end up losing money even if AMC continues to rise steadily. To pump IV again, AMC would likely need a massive up move that defies most people’s expectations.
Based on the mixed options data right now, I’m not buying AMC options. I think there is still money to be made selling calls, but a name like AMC can easily wipe out call sellers. I think the only play here is to own shares or sell spreads.
I also think looking at other movie theater stocks is a good play. The rising tide of AMC will likely lift the other boats.
Dividend Growth
Jefferies Financial Group (NYSE:JEF) is an investment bank and asset manager that increased its dividends substaintly this year. After a great 2020 fueled by the SPAC boom, Jefferies increased its quarterly dividend by 33% over last year. It now pays out 20 cents per share per quarter, or 80 cents per year.
That gives JEF a 2.48% dividend yield based on Tuesday’s closing price.
Check out this summary from Kiplinger:
“Jefferies achieved record net revenue of $5.2 billion in fiscal 2020, as well as record net earnings of $875 million and 20.4% return on equity (ROE). Revenue from investment banking, capital markets and asset management each set new records, while the merchant banking business recorded a pre-tax loss. Jefferies also ramped up share repurchases, and has returned nearly $3.4 billion to investors in the past three years through both stock buybacks and dividends.”
Jefferies’ 5-year dividend growth rate is 20% while the stock itself is up 96% over that same time period.
Jefferies seems like a solid addition to any dividend growth portfolio looking for exposure to the financial sector.
Alpha Thought
Disclaimer: The publisher does not guarantee the accuracy or completeness of the information provided in this page. All statements and expressions herein are the sole opinion of the author or paid advertiser.
Alpha Letter is a publisher of financial information, not an investment advisor. We do not provide personalized or individualized investment advice or information that is tailored to the needs of any particular recipient.
THE INFORMATION CONTAINED ON THIS WEBSITE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF ANY COMPANY MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED HEREIN SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN INVESTIGATION AND DECISIONS REGARDING THE PROSPECTS OF ANY COMPANY DISCUSSED HEREIN BASED ON SUCH INVESTORS’ OWN REVIEW OF PUBLICLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED HEREIN.
No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned.
Any projections, market outlooks or estimates herein are forward looking statements and are inherently unreliable. They are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur. Other events that were not taken into account may occur and may significantly affect the returns or performance of the securities discussed herein. The information provided herein is based on matters as they exist as of the date of preparation and not as of any future date, and the publisher undertakes no obligation to correct, update or revise the information in this document or to otherwise provide any additional material.
The publisher, its affiliates, and clients of the a publisher or its affiliates may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.
Neither the publisher nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of the information contained herein.
By using the Site or any affiliated social media account, you are indicating your consent and agreement to this disclaimer and our terms of use. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile or any other means is illegal and punishable by law.
For Full Terms of Use Click HERE. For the Privacy Policy Click HERE.
alphaletter.co (“Alpha”) is a website owned and operated by Substack. Alpha is paid fees by the companies that make investment offerings on this website. Be aware that payment of these fees may put Alpha in a conflict of interest with the investor. By accessing this website or any page thereof, you agree to be bound by the Terms of Use and Privacy Policy, in effect at the time you access this website or any page thereof. The Terms of Use and Privacy Policy may be amended from time to time. Nothing on this website shall constitute an offer to sell, or a solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction where such an offer or solicitation is against the law or to anyone to whom it is unlawful to make such offer or solicitation. Alpha is not an underwriter, broker-dealer, Title III crowdfunding portal or a valuation service and does not engage in any activities requiring any such registration. Alpha does not provide advice on investments or structure transactions. Offerings made under Regulation A under the U.S. Securities Act of 1933, as amended (the "Securities Act") are available to U.S. investors who are “accredited investors” as defined by Rule 501 of Regulation D under the Securities Act well as non-accredited investors, who are subject to certain investment limitations as set forth in Regulation A under the Securities Act. In order to invest in Regulation A offerings, investors may be asked to fill out a certification and provide necessary documentation as proof of your income and/or net worth to verify that you are qualified to invest in offerings posted on this website. All securities listed on this site are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. Alpha does not verify the adequacy, accuracy or completeness of any information. Neither Alpha nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy, valuations of securities or completeness of any information on this site or the use of information on this site. Neither Alpha nor any of its directors, officers, employees, representatives, affiliates or agents shall have any liability whatsoever arising from any error or incompleteness of fact, or lack of care in the preparation of, any of the materials posted on this website. Investing in securities, especially those issued by start-up companies, involves substantial risk. investors should be able to bear the loss of their entire investment and should make their own determination of whether or not to make any investment based on their own independent evaluation and analysis
Nice article. Do you analyze options activity when researching a company that you think has great fundamentals and may be undervalued in the short-mid-long term? Or is it mainly useful for these momentum stocks? Kind of a noob here. Thanks.