The movie chain is in big trouble.

music selection:  “Straighten Up ” — Tycoon

The movie chain AMC is in dire financial straights.  Coronavirus shut down a lot of theaters temporarily.  Most are back open at partial capacity but the seats are empty.  It seems people would rather stream content from home that spend two plus hours wearing a mask.  The company is burning through cash at a terrifying rate.  I expect they are heading to bankruptcy and a share price of zero.

I have had a limit order open at 1.03 per share for the 18JUN2021 2 strike puts for some time.  Ten contracts cleared the market today.  I don’t expect a savior.  The economics of the business are really bad right now.  Anyone wanting to get into the business at this point is better served waiting for debt to wiped out in bankruptcy and then bidding on the remaining distressed assets.  I should roughly double my money in 71 days.

Devour your prey raptors!

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Bought puts AMC Theaters (AMC)

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5 thoughts on “Bought puts AMC Theaters (AMC)

  • November 6, 2020 at 3:39 pm
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    This is an intriguing speculation. Have you modeled their cash flow?

    Reply
    • November 6, 2020 at 3:48 pm
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      The Cash FLow is a little hard to model because COVID-19 could end any day and revenue would soar. But if you make linear assumptions based on the current glidepath, they are out of cash by February and have to declare BR.

      Reply
      • November 6, 2020 at 7:11 pm
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        The pandemic won’t be over by Feb, so BR it is.

        I do wonder, however, if their cash burn becomes less linear as time goes by. E.g. variable costs decline, closed locations stop losing money, maintenance is deferred, they stop paying the cleaners and insurance, rents are renegotiated, etc. I remember watching Sears die for 3 years and their stock somehow still isn’t zero.

        Reply
        • November 7, 2020 at 11:33 am
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          Agreed, they might prolongue life for a few extra months. Jan 2012 is a bit of a short time frame for my taste. But on the longer date puts the market as well is clearly factoring a bankruptcy for AMC. Not a lot of potential profit left there.
          They are dead, question is when do they pull the plug? Since they are bleeding cash sooner would be better than later. Covid might wipe out a lot of theater seats making the sector pretty interesting for outside investors in the long run. The business might have been in a decline for some time but get the best assets cheap enough + Covid killing of a lot of competition and you might find yourself in a last man standing position with decent pricing power for a decade or two to come, and after that you can always redevellope the site towards something else …

          Reply
          • November 8, 2020 at 4:10 pm
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            Sloth,

            I made a very unfortunate typo. The puts are 18JUN2021, not January. Using an “A” where a “U” was warranted was really misleading. Thanks for reading.

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