I am not a financial advisor and this is not financial advice.
A lot of apes in the AMC community and now outsiders want to know, are there AMC naked shorts or is this just a conspiracy told by Redditors to provoke more buying in AMC? A lot of press coverage has addressed this as of late so I wanted to try and give you, the community, the most transparent and clear answer. Unfortunately as it stands that answer is a little clouded due to the closed door activities that take place in the financial community. That being said, lets dig into it
What Is Shorting and Naked Shorting
A really good author once taught me that before you teach anything you must first learn the fundamentals. What is shorting? Shorting according to investopedia.com https://www.investopedia.com/terms/s/shortselling.asp is, “In short selling, a position is opened by borrowing shares of a stock or other asset that the investor believes will decrease in value. The investor then sells these borrowed shares to buyers willing to pay the market price. Before the borrowed shares must be returned, the trader is betting that the price will continue to decline and they can purchase them at a lower cost. The risk of loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity.” In essence these are the opposite of long positions or buying a stock in the fact that they hope the price goes down. Now, this in itself is not a nefarious act, in fact its considerably healthy for a market to have short sellers and as a trader or investor it can add a tool to your toolbox. What is nefarious and bad for market health is when these shares are abused and when these shares are used as a tool to deliberately bring down market prices.
Now what is the difference between short selling and naked short selling or naked shorting? According to Investopedia.com https://www.investopedia.com/terms/n/nakedshorting.asp naked shorting is, “the illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock or determine that it can be borrowed before they sell it short. So naked shorting refers to short pressure on a stock that may be larger than the tradable shares in the market.” There is rare instances that naked shorting happens on accident or one thing leads to another that can cause this. Legislation that passed in 2008 called the SHO regulations supposedly reduced naked shorting in the market significantly. However, we have seen that there is possibly some bad actors in the market that have disregarded these regulations and just paid the fine, more on that later.
AMC’s Recent Media Release
June 9th, AMC released its shareholder count as of June 2nd, 2021. From this report
we get this information:
- As previously disclosed, there were 501,780,240 shares outstanding as of June 2, 2021, the record date for the Shareholder Meeting scheduled for July 29, 2021.
- As of June 2, there were approximately 4.1 million1 individual shareholders eligible to vote at the upcoming Shareholder Meeting.
- Advance voting will begin on June 16, with most shareholders eligible to vote by internet through 11:59 PM Eastern Daylight Time on July 28.
- AMC’s definitive proxy statement will be filed on June 16. Shortly thereafter, voting materials and a notice of the Shareholder Meeting will be sent to individual investors. Such investors are encouraged to reach out to their brokers in the latter part of June or early in July if these materials have not yet been received from their brokers.
So if we have a total of 501,780,240 shares outstanding as per June 2nd, 2021 we know that’s the max amount of shares total…right? Lets look at the definition for individual shareholders before we dive into this next part. Per Google.
So we had 4.1 Million individual shareholders eligible to vote and Adam Aron also said in the report, “More than 80% of AMC shares are held by a broad base of retail investors with an average holding of around 120 shares.” So, that math adds up to 4,100,000 shares x 120 shares per investor which brings us to 492,000,000 which when subtracted by the total shares of 501,780,240 equals to 9,780,240 shares. Perfect, essentially the leftover shares can be attributed to the factors of rounding. Well this is where it gets tricky. You see we have about 100,000,000 shares that are owned by institutions that we last knew of. So unless they have sold all but 10 million shares we likely have an excess. This doesn’t include the fact that these investors are mostly just the US and Canada and we have many more investors overseas. Last reported by Adam Arons 2 months ago was about 27 Million. So as it stands, it would seem the total shares stand at 123%. Is this legal? Maybe, and maybe not. It depends on the situation but it is highly unlikely that any scenario plays out where the FTD’s hit the account late and they couldn’t account for 23% of the outstanding shares.
Now you might hear people add in borrowed shares or short shares to this count but there is no need. Why? Because borrowed shares are typically used to short and short shares are typically borrowed from the float. However, it is highly likely in this instance, and of my opinion, that there is naked shares floating around and excessively. Is this an illegal practice or nefarious? That’s not for us to decide ultimately but per the webpage from earlier by investopedia.com on naked shorting the first couple words are, “Naked shorting is the illegal practice…”. However, historically, these firms that have practiced naked shorting have gotten slaps on the wrist or minor fines. This instance can be quite different. The cries for months now from the Reddit crowd had said after the halted trading on GME, AMC and a number of other heavily shorted stocks that there is malpractice going on. Now we have possible evidence in that direction. What comes next? Your guess is good as ours but tell us how you feel with a comment on the bottom of the article, we really want to know how this makes you feel as an investor, whether you are an, “ape”, or just a regular retail investor.
Naked Shorting Media Attention
Recently, this phenomenon has gained traction in not only the fascinating world of Reddit and Youtube investors but also the mainstream media broadcasts. A key supporter of this movement from the Fox Business side of things was Charles V Payne.
Now its time to get into the fun part. Possible conspiracy theories that are circulating on social media. Some of these are funny and some of these are deep state.
AA has no Shorts
During a recent interview with Trey Trades on Youtube the CEO of AMC had hilariously slipped up and the camera had shown he wasn’t wearing any pants. Some Redditors and other social media activists for the cause believe that this was done intentionally to show that there is naked shorts in circulation.
Melissa Lee “Naked Shorting”
Melissa Lee also famously slipped up with an interview with a host talking about the effect of borrowing shares that didn’t exist. As a lot of Redditors will point out she seemed very surprised after she accidentally said, “naked shorting”. This was seen as a pointing of the finger at the system and how it is knowingly participating in these practices.