Listen, anything can happen in the stock market, but AMC Entertainment Holdings (AMC) has a short-term issue to worry about. Options expire on Friday and there are a TON of options bets placed on AMC for May. At the moment, millions of dollars of net in-the-money call interest exists, and much of it could be wiped out with a simple bout of profit taking over the next few days to a week. First, check out the May options scenario:
This represents data from cboe.com, with the far left column totaling open call interest at each strike price shown and the far-right column totaling open put interest at each strike price. I see roughly 5000 in-the-money puts, while there are upwards of 150,000 in-the-money call contracts. A short-term period of selling would help to wipe out a ton of call premium. This is all occurring with options expiration this Friday and AMC sitting right on top of key price resistance:
The stock market never provides us any guarantees, and AMC could certainly break out. Market makers are able to protect themselves by buying the stock while simultaneously selling options to all the ardent options buyers. It's a covered call strategy. But if market makers could somehow begin to exercise influence of the short-term price direction, they'd be in a position to make A LOT more money.
Let's see how it plays out.
At 4:30pm ET today, I'll be hosting our monthly Max Pain webinar for our EarningsBeats.com members. I'll unveil several more options-related trade candidates based on the current imbalance of calls and puts. If you'd like to join me, it only takes a no-cost, 30-day trial to do so. CLICK HERE to get started!
Happy trading!
Tom Bowley, Chief Market Strategist, EarningsBeats.com
