Sumary of AMC Bet by Hedge Fund Unravels Thanks to Meme-Stock Traders:
- Mudrick flagship fund lost 10% in just a few days as a jump in AMC stock price unexpectedly triggered changes in the value of derivatives the fund held as part of a complex trading strategy, people familiar with the matter said..
- Jason Mudrick, the firm founder, had been trading AMC stock, options and bonds for months, surfing a surge of enthusiasm for the theater chain among individual investors..
- But he also sold call options, derivative contracts meant to hedge the fund exposure to AMC should the stock price founder..
- Those derivative contracts, which gave its buyers the right to buy AMC stock from Mudrick at roughly $40 in the future, ballooned into liabilities when a resurgence of Reddit-fueled buying recently pushed AMC stock to new records, the people said..
- On June 1, AMC disclosed that Mudrick Capital had agreed to buy $230 million of new stock directly from the company at $27.12 apiece, a premium over where it was then trading..
- Mudrick immediately sold the stock at a profit, a quick flip that was reported by Bloomberg News and that sparked backlash on social media….