Long GameStop, Short AMC: A Meme Stock Pair Trade With Positive Carry
Summary
- Investors piled into GameStop and AMC stock in an attempt to trigger a short squeeze. A long-short pair trade emerged based on the fundamentals and capital needs of the companies.
- GameStop has a large net cash balance and a stable share count. AMC is loaded with high-interest debt, flirting with bankruptcy, and has bled shares.
- AMC will likely make a move that will hurt its stock price, like dilution or restructuring, to address debt that matures in 2025 and yields over 20%.
- GameStop and AMC stock have become highly correlated, often trading lockstep despite their distinct risk profiles, which presents a compelling opportunity to buy GME and sell AMC.
Analyst’s Disclosure:I/we have a beneficial long position in the shares of GME either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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