AMC trade idea – calendar spread, sort of via /r/wallstreetbets #stocks #wallstreetbets #investing

AMC trade idea – calendar spread, sort of

AMC stock price is up 3x from 2019, but the market cap is up 17x because the company diluted shareholders by 5x last year. Point here is that it has a lot further to fall bc the share dilution was so bad.

I see the best case scenario as a full fundamental recovery – AMC EBIT returns to a peak of $320 million. I think at best, this happens in two years. If that’s the case, the stock currently trades at 40x 2Y forward EBIT. Which is absolutely insane, probably making it more expensive than Tesla or Nvidia.

In all likelihood, there isn’t a full recovery. With all of the new streaming releases, I find it unlikely that foot traffic will return to norms. Plus, higher labor costs are going to make it difficult to achieve those peak EBIT margins. So the stock probably trades at 60-100x 2Y forward EBIT.

Options are expensive, but you could put on a cost effective short by selling a covered call (ITM, 2023 or 24) and buying multiple OTM puts for 2022, i.e. the premium on the short call would cover the long puts (effectively making the breakeven=strike). This is a calendar spread of sorts.

Submitted April 01, 2022 at 06:03PM by YoloSnek
via reddit