By Matt Scuffham and Saqib Iqbal Ahmed
NEW YORK (Reuters) – Some Wall Street traders are betting on another big rally in AMC Entertainment Holdings Inc and other “meme” stocks this week through a type of bet in the options market that will limit its exposure. their loss if retail investors are behind the action. up proving them wrong
Analysis of Reuters options data and interviews with market participants. including Wall Street bankers and fund managers with $30 billion in assets. This shows that some institutional investors have added more complex options trading. which makes them bet that the stock will go down.
A strategy called “bear put spread”; is a common bear market option strategy. It also limits profits.
Increased usage now. which has never been reported before It shows that Wall Street is looking for ways to profit from an unprecedented increase in retail purchases. But it must be cautious after some well-known funds were hit earlier this year.
Speaking about options trading on AMC, Henry Schwartz, head of product intelligence at Cboe Global Markets Inc, said: “It is still dominated by these small retail businesses for sure. But we see some large institutions being seduced by price alone.”
AMC has been at the center of the second wave of buyouts by retail investors hitting stocks on forums for example. Reddit’s WallStreetBets gave new life to the “meme stock” phenomenon that sent video game retailer GameStop Corp’s stock up 1,600% in January.
AMC shares are up just over 83% in the past week. The stock is up 2,160% this year, forcing traders to bet on a loss of nearly $4 billion in nursing paper, according to the latest available data from S3 Partners.
When the stock moved as much as AMC last week This is more than doubling the price during a single trading session. It caused the price of the option to skyrocket.
Typically, moves of this magnitude don’t last for long, and some professional traders are betting that will be the case, meaning stock prices will fall, market participants said.
The problem is, they don’t know when this will happen. And do they have enough resources to face off against smaller retailers who have power in their numbers?
That’s what caused the spread of bears. in trading strategy An investor buys a set of contracts. This gives them the right to sell the underlying stock at a “strike” price for a certain period of time. and selling other sets as well Lower strike price for the same time frame
Selling the option sells offsets most of the upfront cost of purchasing the first set of contracts. If stocks don’t fall or fall less than expected. The trader’s losses from the buy on offer are protected to a large extent with the proceeds of the sale.
The banker, the chief executive of a major Wall Street firm, said most of his institutional clients stay away from meme stocks, but some have started using falling spreads to bet on them. The New York-based fund manager said he uses spreads to reduce risk and reduce costs as he bets on AMC and other meme stocks.
The two asked to remain anonymous because they were not authorized to speak to the press.
Options trading data shows the increasing complexity of trades associated with strategies such as placing spreads. Typically favored by professional traders, it accounted for 22% of average daily AMC trades this week, up from 13% in May, according to options analysis firm Trade Alert.
Overall options trading data on stocks continues to be heavily driven by retail traders. Only about 10% to 15% of the total daily AMC options volume this week were traded in blocks of more than 100 contracts, a size often associated with professional players.
Schwartz from Cboe said: “It is difficult for institutions to avoid when volatility is high. “They try to avoid But it drew them in.”
(Additional reporting by Sinead Carew, editing by Paritosh Bansal and Sonya Hepinstall)