March 13, 2023

WORLD: AMC, BBBY, GME: Why Betting Against These Meme Stocks Comes At High Cost. AMC Is The Most Expensive Stock To Short, With Borrow Fees North Of 140%. In February, These Fees Topped 700%.

I added these pictures above to the message I shared with you below.
The Street
written by Bernard Zambonin
Wednesday March 8, 2023

Investors looking to bet against major meme stocks must pay some of the highest fees in the market to do so.
  • AMC Entertainment is currently the most expensive stock to short, with borrow fees north of 140%. In February, these fees topped 700%.
  • Bed Bath & Beyond is another very expensive stock to short, with fees around 116%.
  • GameStop is also one of the most expensive stocks to short, and it remains popular with meme investors.
Why Is It So Expensive to Short Meme Stocks? Short selling — betting that the value of a particular asset will go down — involves borrowing that asset from a brokerage and then selling it on the open market.

Of course, brokerages charge fees for allowing traders to borrow the asset in question. These annualized fees are dictated mainly by supply and demand.

The more interest there is in shorting (and therefore borrowing) a stock, the harder it becomes to locate available shares. Consequently, borrowing them becomes more expensive.

In general, "normal" borrow fees range between 0.3% and 3%. But when demand for a certain asset is particularly high, it's not uncommon to see these fees exceed 20%.

However, it's worth noting that when there is a sudden increase in borrowing fees, it can be an indication that a short squeeze is in the works.

Short squeezes occur when the value of a stock rapidly rises.

Most often, short squeezes are triggered by too much short-selling activity. As borrow fees skyrocket due to increased demand, traders are under pressure to close their positions as soon as possible.

But sometimes they're caused by investors piling into the stock, driving up its price and thus "squeezing" the short sellers.

That's what has happened with several of the biggest "meme" stocks — AMC Entertainment (AMC) - Get Free Report, Bed Bath & Beyond (BBBY) - Get Free Report, and GameStop (GME) - Get Free Report — in January 2021.

And today, they're still among the most popular targets — both for meme stock investors and short sellers.

Why AMC Is the Most Expensive Stock to Bet Against According to data from S3 Partners, AMC Entertainment is currently the most expensive stock to borrow against.

As I write, there is about $875 million of short interest at stake in AMC. That's about 25% of its stock float.

AMC borrow fees are at an incredible 142%. However, in the middle of last month, fees reached an eye-popping 700%.

This year alone, AMC shares have accumulated gains of almost 60% – peaking with a 93% gain at the end of February.

Most likely, this substantial rise is due to an increase in short-squeeze movement influenced by company-specific news such as the vote to convert AMC Preferred Equity (APE) units into common shares.

Why BBBY Is Another Super-Expensive Stock to Short In second place on the list of the most expensive stocks to bet against is Bed Bath & Beyond. Currently, the home goods retailer's short interest is worth about $96 million.

Currently, short positions in BBBY represent about 57% of the stock's float. This is a huge percentage.

The high demand for shorting Bed Bath & Beyond is reflected in very high borrow fees, which are currently about 116%. In early February, borrow fees reached nearly 450%.

BBBY's short-selling activity intensified after the company announced it was preparing to file for bankruptcy. Bed Bath & Beyond reported that it would default on several loans.

The news sent short interest in BBBY up by about two-thirds — while at the same time, institutional long positions in the stock have dropped by roughly the same amount.

However, Bed Bath & Beyond managed to raise around $1 billion through convertible share offerings. This caused the company to postpone its impending bankruptcy at the very least.

But it also diluted the company's stock, leading to a lower share price and curbing the bullish momentum BBBY had seen in the first two months of the year.

Why GME Is Still a Risky Short Bet

GameStop continues to be a solid target for short sellers. However, betting against GME can be quite risky.

Currently, there is about $1.05 billion of short interest surrounding GameStop's stock, which is roughly about 22% of its float. GameStop's borrow fees stand at 11%, which makes it among the 20 most expensive stocks to bet against.

It's possible that demand for shorting GME has decreased since the beginning of the year — especially compared to AMC and Bed Bath & Beyond — because GameStop's financial health has improved.

Currently, GameStop has a sizable cash position and low debt, which its long-term liquidity risks far lower.

On top of this, the stock continues to be popular among retail investors on some social media platforms. For example, on Reddit, even with a big drop compared to January, GameStop's stock was the most commented-on ticker in February.

Considering all of this social media activity, GameStop's high borrow fees could spell disaster for short sellers if there would be any sudden upward movements in the stock.
UPDATE 3/14/23 at 4:47pm: Added info below.
I forgot to mention AMC Theatre popcorn rollout at stores near you.

Posted by Princess Mononoke at 3:44 AM

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