Admittedly, there’s always a risk to finance writers who don’t broadcast anything but glowing adoration for cineplex operator AMC Entertainment (NYSE:AMC). However, the overwhelming reality is that AMC stock has been a poor investment. Over the past one-year period, shares gave up more than 23% of value. Over the past five years, they’re down more than 89%.
If there’s supposed to be some redeeming quality here, it’s not evident at all. As far as that narrative is concerned, the cineplex operator is the hide-and-go-seek champion of the world.
Still, as a popular penny stock and as a meme favorite, AMC can’t always be dismissed. Last week, the security managed to gain nearly 14% (from Monday’s open to Friday’s close). As I pointed out in my earlier articles for Money Morning, FOMO or the fear of missing out represents a powerful emotion. In many cases, extreme strength can beget even more strength.
But is that the case for AMC stock? Sadly, the data does not support such a notion. From the get-go, AMC already puts long-side speculators against the wall with a negative bias. Using data since January 2019, the chances that a position entered at the beginning of the week will be profitable by the end of it is only 45.79%. Over a four-week period, the long odds diminish to 41.12%.
Dynamic probabilities or probabilities calculated for specific parameters don’t materially improve the situation; in fact, circumstances actually worsen. Following a one-week return between 10% to 20%, the long odds for the subsequent week are only 40%. Over the next four weeks, the bullish success ratio falls to a staggering 28.57%.
It should be pointed out that at this moment, AMC stock is losing about half-a-percent for the week. In addition, weakness in the pre-market session Thursday could chip away at the company’s equity value. Therefore, it’s on pace to lose around 2% or so.
Following a one-week loss of up to 5%, the long odds improve for AMC stock but not materially. The most optimistic of believers could potentially target the final week of February. For that juncture, there’s a 51% chance that AMC will rise in value. Unfortunately, that’s about as good as it will get. Four weeks out (thus coinciding with the options chain expiring March 21, there’s only a 42.19% chance that the equity will be in the black.
Generally speaking, conservative investors — or anyone remotely labeling themselves as conservative — should steer clear of AMC stock. However, the most aggressive speculators could choose to deploy a a bearish options strategy.
Among the multi-leg transactions available, the most ambitious would be the 3.50/3.00 bear put spread for the March 21 expiration date. This trade calls for buying the $3.50 put and simultaneously selling the $3 call. Dynamic projections suggest that AMC could fall to $3.05 by then. With any luck, an unexpected downdraft could send the stock spiraling toward and maybe below the psychologically significant $3 level.
