AMC/APE Spread Trade
- Thread starter joanar
- Start date
(1) AMC and APE are not fungible... so we don't have normal arbitraging forces at play. If they were fungible (ie: I could *convert* APE shares into AMC shares) then the spread would narrow very quickly.
Now for my speculation...
(2) In my IB TWS, I notice that APE has 6x the number of shares available to short compared to AMC, so maybe it's sufficiently easier to short via APE to drive the price of APE down more than AMC? (APE has triggered the uptick rule today, whereas AMC hasn't.) Available to short: AMC = 98k; APE = 604k
(3) These are highly speculative stocks. If AMC was some stable company with a long history of paying regular dividends, for example, and if both stocks (AMC and APE) represented equal rights and claims on the company (including dividends) then I would expect a much tighter spread. As is, we have two stocks to speculate on a highly speculative company.... anything could happen. Who knows?... for all I know, most of the trading neophytes who want to go long AMC don't even know there is an APE version so they are disproportionately bidding on AMC relative to APE (so that AMC is down less today). I really don't know. All of this would be arbbed away by more knowledgeable market participants if they were fungible, but they aren't. (Related to this, +1 to FreeGoldRush, below.)
(4) As for the spread, that's a broker-specific question, but I speculate most (all?) brokers are just treating a spread as two separate (unrelated) stock positions.
EDIT: Short fee is currently 23.4% on AMC; 28.6% on APE.
Now for my speculation...
(2) In my IB TWS, I notice that APE has 6x the number of shares available to short compared to AMC, so maybe it's sufficiently easier to short via APE to drive the price of APE down more than AMC? (APE has triggered the uptick rule today, whereas AMC hasn't.) Available to short: AMC = 98k; APE = 604k
(3) These are highly speculative stocks. If AMC was some stable company with a long history of paying regular dividends, for example, and if both stocks (AMC and APE) represented equal rights and claims on the company (including dividends) then I would expect a much tighter spread. As is, we have two stocks to speculate on a highly speculative company.... anything could happen. Who knows?... for all I know, most of the trading neophytes who want to go long AMC don't even know there is an APE version so they are disproportionately bidding on AMC relative to APE (so that AMC is down less today). I really don't know. All of this would be arbbed away by more knowledgeable market participants if they were fungible, but they aren't. (Related to this, +1 to FreeGoldRush, below.)
(4) As for the spread, that's a broker-specific question, but I speculate most (all?) brokers are just treating a spread as two separate (unrelated) stock positions.
EDIT: Short fee is currently 23.4% on AMC; 28.6% on APE.
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The best explanation is that AMC has not been trading on fundamentals for two years. The apes see APE as a second class citizen. Shorting AMC and going long APE carries the risk that APE will trade closer to fundamental value than AMC has been.
I agree on the non-fungible part but if their statement clearly states that they have the same voting/economical properties, I would assume that they should trade at the same price.
I am not on my IB right now but yes I also saw the difference if short availability. Although I believe the borrow fee was very similar.
yes but I would have assumed that portfolio margin takes care of that
I am not on my IB right now but yes I also saw the difference if short availability. Although I believe the borrow fee was very similar.
yes but I would have assumed that portfolio margin takes care of that
@FreeGoldRush
yes but once they’re all bankrupt you would assume the two securities should trade at the same price right.. like if there was no hype around AMC and it would go back towards fundamentals
yes but once they’re all bankrupt you would assume the two securities should trade at the same price right.. like if there was no hype around AMC and it would go back towards fundamentals
I don't think so. You would have to have a lot of rational investors interested in the company to narrow the spread based on voting and fundamental properties. This is not one of those companies. The stocks will trade based on all sorts of perceptions and could trade very differently. Only true fungibility would drive "real" money into narrowing the spread.
Some small hedge funds are going to blow themselves up on this arbitrage. They'll get in and go too far out on a limb of low liquidity. The apes will take their gambling tokens and crush them once they figure out what is happening. The setup will be right in the SEC form 13F's. A theatre chain has nothing to do with it. It just becomes math.