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Shorting AMC Correctly

#AMC has been a hot stock ever since the Reddit community got on it. However, things have started to fizzle out as retail investors finally learned how to profit take. There are a few simple ways to short a stock: short sell, buy options or sell options. Each have inherent risk but I only chose the latter as it is the best way to play the stock and I have returned 100% every week since June shorting the stock, doubling up every week with my profit.

First, there is short selling. This is one of the riskiest as you are fully exposed to the stock with a delta of 1. You also are required to put up margin, which with the meme trend, it became excessively expensive. There really is no reason to use this strategy, as you are eating up a lot of your trading capital, are at risk to a huge price move where you are going to get margin called, and if the stock doesn't move you don't make any profit. Hard pass on this strategy.

Second, there is buying a put. This is the least riskiest, as your downside is limited, you can get a decent amount of delta , and you have unlimited upside if the stock completely tanks. However, if the stock doesn't move at all, you will lose all your extrinsic value in the option. So for less risk adverse people who truly think there is a down swing, this would be a good strategy. However, I still don't think this is the right play.

Lastly, there is selling an option. In order to short, I sold calls OTM on AMC. Given that this was a meme stock, it was currently trading around 50, and the premiums on OTM options were insane , I chose this strategy. My upside is capped(the premium I sold the option at) and I have unlimited risk to huge moves. However, given the trends, VWAP, and the fact that AMC had a 52 week high at that time of ~70 , it seemed like a no brainer. I sold 130 strike calls on weeklys that had a premium of ~$3 to $4 dollars, and since options give you the right to 100 shares, that makes each call I shorted $300 to $400 dollars in premiums. Multiply that by 6-7 contracts and you can see how this starts to add up. I am receiving about $2-3k a week in premiums ( just for reference sake) with in what I would say is very limited risk. I would need a 125% price move in order to just break even on my money. Any stock settle price below my 130 strike. This is why I believe this was the best strategy and how I capitalized on the over priced premiums on this stock. It is how I banked off AMC if you were following my posts. Just keep in mind you have to keep a very close eye on the stock as you do have unlimited risk. There are also ways to hedge on this, one would be selling a OTM put, putting a strangle on the stock.

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