In case you’ve missed it, the stock market has been on a treacherous downward trend for the last few months, leaving many stocks to hit some of their all time lows and many investors have completely lost all of their 2021 gains. AMC stock has dropped to $12 per share, leaving many retail investors wondering if hedge funds will be closing their short positions. While it’s rough to see prices drop, retail investors of AMC will continue to buy and hold as usual. The online community for the popular meme stock is strong as always and a reversal is always possible. A reversal during this market would mean that the stock price of AMC would go back up. A reversal simply refers to the change in direction of the current trend line of an asset. It’s assumed that the stock prices cannot go down forever, so a reversal is around the corner. However, the market sell off brings on the question on whether hedge funds will close their AMC short positions?
Currently the off-exchange trading of AMC is at 62.26% and shorts have borrowed 1 millions shares to create a short position. While trading volume has been high for AMC and the company continues to show improvement through the newly released Q1 reporting, nothing seems like it can save the stock prices for any stock at this point — the entire market has been down day after day. Between the escalating tensions between Russia and Ukraine, record high inflation of about 8%, and now an overall crumbling stock market, investors are on high alert and taking advantage of sale prices of their favorite stocks.
Retail investors are expecting that at some point AMC short positions held by large institutions will need to be closed. If the share price of the popular meme stock AMC continues to drop, the more collateral will be required of institutions, making it less accessible for institutions and hedge funds to open short positions. THE DTCC recently has increased margin requirements.
DTCC B16845-22 RAISES MARGIN REQUIREMENTS
On April 29th DTCC announced B16845-22 and said that investors can be margin called if they’ve reduced their collateral. It was announced that stock price that are trading over $10 will have a 25% increase in margin requirements and stocks trading between $7.50 and $9.99 per share will have a 30% increase in margin requirements. Since AMC is trading around $12 a share, margin requirements will be raised by 25% which will ultimately make it more difficult for institutions to continue to short the stock. The raise in the margins requirement means that it will require large hedge funds and financial institutions to maintain more collateral if they’re shorting AMC stock or any other stock trading over or under the given thresholds.
Requiring more collateral may be bad news for hedge funds that we’ve already seen have been struggling. Right now it’s important that hedge funds try to establish what they believe the bottom of the market is so they can try to possibly close short positions as close to the bottom as possible. However, as we know it’s impossible to time anything in the market, so keeping close tabs on market conditions and cues is more important than ever during such a volatile market.