APE and AMC conversion

It’s a method of arriving at post conversion valuation assuming that the deal is final and no friction on the components. I have no idea how many synthetics you can short at 3.67. APE was 2.27 marketable at the close.

I am going to feel stupid if I missed something here, but if my understanding of the deal is accurate then you’ve netted 1.4 pre/14 post split (ignoring sweetener). No risk to (option) structure as you’re in a conversion.
 
destriero said:
I know nothing other than what has been stated here.

Pledging your APE purchased at 2.27 results in AMC shares. Let’s ignore the sweetener here. Buy 2.27 and short synthetic (Aug25 synth at 3.67) in AMC nets a 1.40 gain. Since APE is fungible into the conversion your AMC cost basis is 2.27. You have purchased pre-split AMC at 0.87 net.

The resulting position is long GME natural (converted APE) -> short synthetic AMC = a=conversion arbitrage. You also have the additional 1 share per 7.5 sweetener.

The thing splits reverse 10X? Now your cost basis is 8.7. I am probably missing something important here, but if I am not then perhaps the Street is valuing the post-split company under $10 due to risk of completion, some other factor…
More...


The PNL figure is the cost basis on AMC (post share-conversion) of 2.27 less the (option conversion arb) proceeds for a gain of 1.4/share pre split. This does not include the sweetener nor any issues with completion. You cannot gain > 1.4 (excluding sweetener) due to the share-conversion and the conversion in vol, comms, etc*. There are two conversions; one is class arb and the other is option arb.

Long APE and short the AMC synthetic results in zero position, post option expiration. There is no risk as structured. I am not underwriting this; I am operating on limited info here. Trade at your own risk.
 
Last edited:
TheBigShort said:
Hello all,

I am starting this thread to try and figure out what I am missing on this AMC/APE conversion next week. If anyone has ideas on why this spread is not as tight as it should be please comment.

APE is going to converge with AMC on Friday Aug25th.
AMC will be giving 1 extra share to holders for every 7.5 shares held after the reverse split and before the conversion which would mean AMC will trade 13% lower than current spot (baked into the synthetics).

AMC current spot px is 4.1 and adjusted for the dividend (1 share for every 7.5 owned) that should put AMC @ ~$3.55.

APE is currently trading @ $2.27
AMC synthetic for Sep1 is trading @ $3.10

From the reports it is pretty clear that the conversion will happen this week so im not sure why the market is giving me this bet.

I understand that AMC has a squeeze potential so it should trade above fair but I still cant see how AMC is the alpha leg.

After the conversion the new AMC ticker will have 159mm shares. If we use current APE and AMC market caps that puts a combined total of 5.2bn. If i divide 5.2b by the 159mm shares then the fair value of the new ticker would be roughly $3.27 (not 10-1 share split adjusted).

The one concern i do have is APE is currently able to issue shares while AMC is not. So it is likely that APE is potentially fair value @ < $2 and after the conversion AMC will instantly drop to reflect that price.

That still does not explain the AMC synthetic that is trading $1 over APE with only 1 week to go!

If anyone has any ideas on why this trade exists, your input would be greatly appreciated.


@Bill Gross
“For the record I am long quite a few of APE shares and long AMC Sep1 $2.5 puts as a hedge
More...


“Another Meme bites the dust -- AMC Hope you followed my earlier tweet below from April Here’s the bigger point: easy money promotes SPACs and NFTs and Memes etc When money is no longer easy lots of fun ideas bite the dust
Quote






QRfxN8t__normal.jpg


Bill Gross
@real_bill_gross
·
Apr 5
Replying to @real_bill_gross
There are ways around the 100% borrow cost via options . Both APE and AMC trade 70 million shares plus a day — so super liquid. Think this through- where will the combined shares trade? I suspect 2 or so because of the massive dilution of new AMC shares being issued. 3/4
 
I head meant to state that since you're in the arb for a 1.4 gain then the conversion results in a street estimate of 14 for the shares, not 8.7. The gain from the option conversion is the street estimate and it worked out to that figure.

My mistake was forgetting it's a pure arb if completed. Long APE = AMC. Long AMC and short synthetic = no position. 1.4 gain on arb * 10 (reverse split) = 14.
 
destriero said:
The gigi was the vol-arb as predictor of the AMC post split landing (14). I am a huge proponent of strict arbs as predictors of forwards post structuring.
More...
I tried helping a few apes escape the carnage after reading your thesis. How could I explain the Shorts were not f’ed like they thought. You deserve their cash!
 
TrailerParkTed said:
I tried helping a few apes escape the carnage after reading your thesis. How could I explain the Shorts were not f’ed like they thought. You deserve their cash!
More...

Yeah, the arb netted $14/share post split. I don't have my conversion gains yet as the components are still trading, but I am not going to unwind it (would cost a dime, pre-split).

IOW, if you (theoretically) could trade the entire float with no friction... you earned the current market cap of AMC.
 
You must log in or register to reply here.
Back
Top