The convincing arguments for joining AMC Stock Bulls
True to its name, AMC Entertainment (NYSE:AMC) provided all kinds of entertainment for speculators. He stands beside GameStop (NYSE:GME) as a mainstay of the memes stock revolution. Since appearing on the scene in January, AMC stocks have remained in the game, with multiple mergers seen since. We are currently in the middle of another wave.
My comment today is aimed at building the technical brief for buyers. I am encouraged by the recent price developments and believe that this proves that the winds are behind buyers’ backs. Before going any further, however, it is worth remembering the intensely speculative nature of AMC. We’re at the bottom of the pool here. Inordinate volatility has and will continue to affect anyone trading the stock. Self-preservation trumps trying to be a hero, so make sure you don’t bet the farm on trades in AMC or Gamestop, for that matter.
AMC stock chart takes shape
While I would like to include bullish stats on AMC’s fundamentals, this is not possible. The stock broke away from reality earlier this year, and chaos has reigned over it ever since. The momentum, the hype, the hope and the illusion of the crowd is what fuels him now. With this as a backdrop, the only way to make smart decisions about the selection and timing of trades is to use technical analysis.
And that, coupled with the ability to use options to raise our odds, is what ultimately makes AMC compelling to me.
On August 24, AMC blew up resistance, triggering the current trend. It wasn’t a small ramp, but a significant increase with over 228 million shares changing hands. As important as the event is, it’s the follow-up that speaks the loudest. Since then, a clear pattern of high pivots and higher low pivots has developed. Prices are now on the north side of the 20 and 50 day moving averages to show that the bulls are in control of the short term and medium term trend.
The volume models have been encouraging along the way. The trend was confirmed by higher volume during advances and lower volume during withdrawals.
The current two-bar decline has allowed AMC stock to test its rising 20-day moving average. Ideally, buyers will step in to defend the trend and trigger the next rally. But, of course, a rebound in the overall market, which has retreated in recent times, would also help.
Two options of business ideas
Implied volatility has exploded alongside AMC’s share price to better integrate a wider range of results. As a result, option premiums are really high. This results in some interesting business ideas that are not normally available with your everyday stock. When it comes to selecting a strategy, you really have two avenues open to you.
First of all, you can go for huge profit potential with low probability of payout. Second, you can enter a high probability of profit but with a smaller potential payoff. Here is how I would structure the two in AMC stock at this time.
Great reward trade: Buy the October 15 Bullish $ 50 / $ 70 Buy Spread for $ 3.60.
You’re risking $ 3.60 to make $ 16.40, but you need the AMC to rise to $ 70 within the next month.
High probability trade: Sell Oct. 15 for $ 30 put for 81 cents.
The maximum reward is $ 81 per contract and is yours as long as AMC’s stock remains above $ 30. The options table puts the chances of this happening at 90%. So even if your profit potential is not as impressive as the purchase spread, you still get a return of around 30% on the initial margin required.
As of the publication date, Tyler Craig does not have (directly or indirectly) any position in any of the stocks mentioned in this article.
The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
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