AMC and APE CONVERSION - Long APE, short AMC
Updated
On March 13, AMC and APE shareholders will vote to convert APE into AMC stock and will reverse split the stock 10/1. AMC has stacked the vote in favor of APE so the outcome is guaranteed.
But what will be the price of the combined stock after the conversion? There are roughly 500M AMC shares, and will be close to 1000M APE shares at time of conversion. A total of 1.5 Billion shares, or about 3x the current number of AMC shares.
APE currently trades at about 1/2 the price of AMC. ($2.40-$2.60 APE/ $4.50-5.50 AMC)
AMC March 17 put options currently are pricing AMC at around $2.50 after conversion.
I believe the correct equation for calculating the post-conversion share price of AMC is to multiply APE by 2 (because there are twice as many APE shares as AMC shares), and add it to the share price of AMC. Then take the combined total and divide by 3 because there will be 3x the current number of AMC shares after conversion. If conversion were to happen today, the combined share price would be $3.35. I think it could be anywhere from $2 to $4 when it happens. Of course the reverse stock split will cause the price to be 10X that, so we’ll see it $20-$40.
AMC has been doing lots of funky math games with their stock in order to try to get the meme thing going again, so they can sell more shares and buy down debt to stave off foreclosure. Their debt service has been more than their income. You have to hand it to them for creativity, but will it work?
Once conversion and reverse split happens, there will be 150 million shares at maybe $30/ share. AMC is planning on selling another 350 million shares, which will bring the price back down to $10 per share. If you are an AMC HODLer, that means less than $1 per share before reverse split.
Current strategy involves holding APE until conversion, while selling AMC calls. Shorting the stock has become too expensive for me, as hard-to-borrow interest fees are over 100%. I am also selling AMC puts, as I think the puts are priced overly-aggressive.
Price could end up at $2.40/$24 on March 17, but I am hoping it will be $3.30/$33 or greater. AMC will move down 2x as much as APE rises, and they will be same price after conversion. There is a $3 difference in price with AMC/APE, so APE will rise $1, AMC will go down $2.
Let’s see how this plays out in the next few weeks.
But what will be the price of the combined stock after the conversion? There are roughly 500M AMC shares, and will be close to 1000M APE shares at time of conversion. A total of 1.5 Billion shares, or about 3x the current number of AMC shares.
APE currently trades at about 1/2 the price of AMC. ($2.40-$2.60 APE/ $4.50-5.50 AMC)
AMC March 17 put options currently are pricing AMC at around $2.50 after conversion.
I believe the correct equation for calculating the post-conversion share price of AMC is to multiply APE by 2 (because there are twice as many APE shares as AMC shares), and add it to the share price of AMC. Then take the combined total and divide by 3 because there will be 3x the current number of AMC shares after conversion. If conversion were to happen today, the combined share price would be $3.35. I think it could be anywhere from $2 to $4 when it happens. Of course the reverse stock split will cause the price to be 10X that, so we’ll see it $20-$40.
AMC has been doing lots of funky math games with their stock in order to try to get the meme thing going again, so they can sell more shares and buy down debt to stave off foreclosure. Their debt service has been more than their income. You have to hand it to them for creativity, but will it work?
Once conversion and reverse split happens, there will be 150 million shares at maybe $30/ share. AMC is planning on selling another 350 million shares, which will bring the price back down to $10 per share. If you are an AMC HODLer, that means less than $1 per share before reverse split.
Current strategy involves holding APE until conversion, while selling AMC calls. Shorting the stock has become too expensive for me, as hard-to-borrow interest fees are over 100%. I am also selling AMC puts, as I think the puts are priced overly-aggressive.
Price could end up at $2.40/$24 on March 17, but I am hoping it will be $3.30/$33 or greater. AMC will move down 2x as much as APE rises, and they will be same price after conversion. There is a $3 difference in price with AMC/APE, so APE will rise $1, AMC will go down $2.
Let’s see how this plays out in the next few weeks.
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Downsized APE position and bought back $4 puts on recent rise in AMC/drop in APE. Now I am about 50% APE stock, and only shorting March $6 calls (and a few $5). Anytime I sell calls lower than that, they have so little premium that they get called away when AMC upticks and I am left with short AMC stock. With Hard-to-borrow fees at 200% of 7/share, I really do not want to pay any more fees. Original trade was a "conversion" when AMC was at $4:
1) buy $4 Mar17 Call @ $.70 (200)
2) sell $1 Mar17Call @ $3.00 (200) -which immediately became short AMC@$4.00
3) sell $4 Mar17 Put @ $2.00 (200)
When the AMC price went above $5-$6, the $4 Calls lost all their premium, and I paid about $9000 in HTB fees for the month. I closed the trade out at a minor loss.
The loss was mitigated by purchasing 10000 APE stock @ $1.50. I sold 5000 @ $2.25.
Current Trade is 5000 APE stock and Selling 40-50 $6 Mar17 AMC Calls, which have some premium attached to it.
It looks like the per share price of the total market cap of AMC is holding steady at $3.35-3.50/share.
1AMC+2APE = share price (then divide by 3 because there will be 3x as many shares of AMC upon conversion of APE into AMC).
After conversion, the reverse stock split will take 10 shares of the new combined AMC stock and give back 1 at 10X the price. So with current market cap combined price of 3.50/share, I would expect AMC price to be $35 if the vote happens as planned
That formula assumes conversion of APE will happen
Note
The lawsuit that was filed may delay the conversion/reverse split vote, and adds risk that it may not happen. This adds uncertainty that was not there 2 weeks ago. With uncertainty and HTB fees making it expensive to short, many short sellers are unwinding the arbitrage trade, which is why AMC price rocketed back up above $6 (short squeeze).
Also, AMC and Antara agreed they can each sell APE shares - Antara sold first, and AMC will sell $120 Million worth of APE after Earnings on Feb 28, but before the vote March 14. So there is additional selling pressure.
Also, since there is a level of uncertainty with whether the vote will happen because of the lawsuit, I think some APE arbitragers like me are downsizing positions.
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Here is the motion today 2/27/23:mega.nz/file/FjZniZjb
Vote will happen 3/14, and results will be tabulated. AMC vote to be counted separately from APE vote. Implementation of Conversion/RS cannot happen until after the Court of Delaware rules. Has set a preliminary injunction hearing for April 27.
Short sellers unloaded positions today, driving AMC stock up at one point past $8 on the short squeeze. Being short AMC stock makes little sense for a while, because even if the vote is affirmative, the shares will have to stay short at least past 4/27 to wait for a ruling. Obviously if a majority of AMC stockholders vote for conversion/RS, this adds credibility to it happening, but AMC prices should stay elevated until a decision is made. It can also stretch past April and into June, July, or even beyond. If HTB fees and prices stay elevated, short sellers cannot hold indefinitely and will continue to buy, keeping AMC prices elevated.
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Being long APE stock is also risky, as AMC Board of Directors wants to delay the implementation of the Conversion/RS as long as possible, as they can sell up to 4 Billion additional shares of APE for a total of 5 Billion.They will be selling 100M APE shares between 2/28 and 3/14.
Antara only needs to hold their 250M shares until 3/14 vote. They were already given permission to sell some of their APEs early, and they can still vote those now-sold shares. AMC Board and Antara could agree that they can each sell more before the vote if they want to.
Selling pressure will be high... buying pressure will be low because there is no promise of APE=AMC at this point, even if the vote is "yes."
The only wins I see long-term in this trade are:
1) Selling long-term AMC calls - Either 1) The court will allow conversion/rs, which will cause AMC share price to drop closer to APE price somewhere between $30-$50 for 10 shares, or 2) If they disallow conversion/RS, AMC will have no way to raise enough capital to pay debts and will be facing Bankruptcy.
2) Selling APE stock - There will be tremendous selling pressure regardless of vote. AMC will sell this stock into the ground because it's already authorized to sell another 4 billion shares, especially if the Courts rule against conversion/RS. They will want to sell this as long as the price is elevated because of the promise of conversion.
3) Possibly holding APE stock until eventual conversion if you can hold on past the selling pressure short-term. Price may jump if AMC shareholders also vote for conversion/RS. This is risky because of #2.
4) Selling short-term AMC puts - Anything OTM earlier than April 27 will likely expire worthless - definitely anything before Mar 14 will be worthless because of the unwinding of the short trade based on this ruling. I'd wait until after March 14 vote results before selling puts into March/April. If AMC shareholders overwhelmingly vote "no" then the likelihood of conversion will be lowered, but long-term AMC will be in trouble. APEs will become nearly worthless, and AMC will sell it into the ground in a last-ditch effort to save the company from bankruptcy.
Trade closed manually
I had expected AMC to maintain some elevation until after the March 14 vote, but price continued to drop and accelerated downwards after the vote. APE I expected to jump up immediately after the vote, and then fall due to release of selling pressure with Antara and AMC both able to sell APEs. It did not jump nearly what I had hoped, so I sold. The drop was swift.
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