Bearish traders swarm AMC options as stock conversion plan faces doubts
By Saqib Iqbal Ahmed
NEW YORK (Reuters) — Shares of AMC Entertainment (NYSE:AMC) Holdings Inc have been hit by a wave of bearish options bets amid uncertainty over the company's stock conversion plan.
The one-month moving average of open puts versus call options on AMC hit 1.7-to-1 on Thursday, the most bearish the measure has been in at least four years, Trade Alert data showed. Puts convey the right to sell shares at a fixed price in the future while calls offer the right to buy shares.
At issue is the company's efforts to convert its preferred class of shares — which trade on the New York Stock Exchange under the symbol «APE» — into its common stock.
The debt-laden AMC raised capital last year by creating preferred shares, which trade at a discount to the common stock. While the common shares finished Thursday at $4.52, the APE preferred shares ended the session at $1.86.
Once AMC is able to convert the preferred shares, the two share classes are expected to merge. Should that happen, traders expect the price of the common stock to fall while the APE shares rise in value.
The company's efforts to convert the shares ran into trouble after shareholders sued it in February, alleging AMC rigged a vote to approve the conversion. AMC did not immediately respond to a request for comment on Thursday.
A judge last week blocked a proposed settlement that would have allowed AMC to proceed with the conversion, which the company said it needs to raise cash and avoid bankruptcy. The move sent AMC’s shares higher, disappointing bearish traders who expected news of a conversion to tank the price.
Still, options traders appear to be powering on with their bearish wagers, in effect betting the conversion will eventually go through.
Read more on investing.com
