Art of Options

"In this time of great uncertainty, where facts are in short supply, speculation and guessing sometimes becomes the norm. Somehow, that speculation can become conventional wisdom, and that conventional wisdom, in turn, can be reported as truth. Let me say to all of you that so much of the speculation about AMC that was prevalent in the last several weeks was just plain wrong. In April, we successfully raised half a billion dollars of new investment capital for AMC, and fortunately, that puts us now in a position of considerable strength." Adam Aron  Call ratio:

YOLO apes band together to short squeeze meme stocks. A short squeeze occurs when speculators that have sold borrowed shares short are forced to buy them back when a margin call rings. Recently,  in addition to GameStop, the YOLO gang has attacked short sellers of movie theater operator AMC Entertainment (NYSE: AMC). That escalated quickly. Hedge fund Mudrick Capital lost 10% in just a few days amid a recent surge in AMC Entertainment's stock price. Since the start of the year, AMC is up more than 3,000%.  Implied volatility remains at a very high level.   Credit Call Ratio:

  Yet again, short AMC options Calls:

Traders are participating in a fierce battle between retail and hedge funds of Wall Street. Or they say so. Anyway, implied volatility in AMC Calls provides an unparalleled opportunity for both sides. Diamond cojones are required:

The implied volatility of short-dated AMC options has dropped to 205%. This means that options prices are still high. For comparison, the implied volatility of  S&P 500 is about 15%  at the moment. Individual stocks rarely have implied volatilities above 100%. After the company announced an equity offering and warned that buying the stock involves a risk of “losing all or a substantial portion of your investment” it makes sense to continue shorting the far out of the money Calls:

 Short Calls:

IV > 600% made this possible:

This ratio spread has  99.8% chance of making $450, less than 0.03% chance of making ~ $8000, and less than 0.01% chance of losing money: