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- Hedge fund Mudrick Capital lost 10% in just a few days amid a surge in AMC Entertainment Holdings Inc's AMC stock price, the Wall Street Journal reported.
- The fund is still up 12% year-to-date, while shares of AMC are up more than 2000% year-to-date.
- Earlier this month, Mudrick Capital announced that it purchased $230.5 million of AMC shares directly from the company at $27.12 per share. The fund later sold them at a profit.
- Mudrick reportedly decided to cash out after it determined that AMC Entertainment's shares are "overvalued" and as it values businesses based on fundamentals.
- The runaway spike occurred on June 2, when AMC shares rose as much as 127% to $72.62.
- The losses for Jason Mudrick's fund primarily came from it selling AMC call options at $40 each, as per WSJ.
- AMC's stock price blew past $40 on June 2, with an intraday high of $72.62. Call option prices soared amid frenzy trading and later cost the fund millions of losses. Mudrick decided to exit the AMC debt and derivative positions the next day in an internal meeting conducted on the evening of June 1, WSJ reported.
- The fund made a 5% return on the debt and, after accounting for its options trade, the fund incurred a net loss of about 5.4% on AMC.
- Mudrick had previously invested in AMC as it navigated a difficult period during the COVID-19 pandemic that forced the closure of its theatres.
- Earlier this year, investors on Reddit's WallStreetBets form led a short squeeze in GameStop Corporation GME, which caused short sellers to lose billions. AMC overtook GameStop in terms of market valuation earlier this month with a sudden surge.
- Photo via Wikimedia.
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