Some Wall Street traders are betting against another massive rally in AMC Entertainment Holdings Inc and other meme stocks through a type of wager in the options market that would limit their losses should retail investors behind the run-up prove them wrong. According to some data some institutional investors have ramped up complex options trades that let them bet the shares will fall.
The so-called “bear put spread,” a common bearish options strategy, also limits profits. Wall Street is looking for ways to profit off the unprecedented rise of retail trading, which is shown by its increased use. But treading carefully after some high-profile funds got buffeted earlier this year. Henry Schwartz, head of product intelligence at Cboe Global Markets Inc said that it is still dominated by small retail trades for sure. But they are seeing sporadic big institutions tempted in just by the pricing. He said this is reference with the options trading in AMC.
AMC has been at the center of a second wave of buying by retail investors who have been hyping the stock in forums such as Reddit’s WallStreetBets. Its stock rose just over 83% this past week, according to the data from S3 partners. They don’t know whether they have the resources to stand their ground in an extended face-off with retail traders, whose power lies in their numbers. A senior executive at a major Wall Street firm, said the majority of his institutional clients were staying away from meme stocks.
The fund manager said that he was using put spreads to both minimize his risk and reduce costs as he bet on AMC and other meme stocks. Overall options trading in the stock remains overwhelmingly driven by retail traders. According to the recent data about 10% to 15% of overall daily AMC options volume this week was traded in blocks of over 100 contracts. It is hard for institutions to stay away when volatility gets this high, as it draws them in, said Cboe’s Schwartz.