AMC Brings Out the Popcorn

The famous George Soros quote is “When I see a bubble forming, I rush in to buy, adding fuel to the fire.” If you watched the stock of AMC Entertainment Holdings Inc. go up 116% last week, on not much news, you might rationally think “boy I wish I had a ton of AMC stock to sell to all these crazy people.” But you don’t have a ton of AMC stock. You could short some AMC stock — borrow it, sell it into the bubble and buy it back later — but that is even crazier: The stock might continue to go up, probably will really, and you’ll get blown up on your short.

So the trade might be to buy some AMC stock, at the current crazy price, wait five minutes until the price is even crazier, and then resell it to someone else. This is, roughly, called “momentum trading,” and it has obvious risks. The stock might go down before you sell it, is the main risk. But there are other, more technical inconveniences. If you want to buy a lot of AMC stock, it will take you some time. Not that much time — in the last 10 days, AMC has traded an average of about $6.4 billion worth of stock each day — but some time. Also if you buy a lot of AMC stock, you’ll probably push the price up, making your stock more expensive. This may not be a big problem (again, AMC trades billions of dollars a day), and it might even be good for you (“adding fuel to the fire”), but it increases your risk. If sentiment turns against the stock while you’re accumulating it and bidding up the price, you will lose more money.