AMC Surges 20% On Massive Options Volume: Can Shares Hit $40?

AMC Entertainment Holdings AMC is having an incredibly strong day, up over 20% heading into the last two hours of trading for the week on a massive amount of options volume.

In Friday's session, the stock has traded over 1.14 million options on the day with over 765,000 calls and 379,000 puts (image below).

What is particularly impressive about today's option flows are that prior to the open this morning, AMC had approximately 1.59 million calls and 1.12 million puts for a total of 2.71 million options. This means today's flows represent over 41% of the total options, which is incredibly strong volume.

Why It Matters: Any time a stock trades 40%-plus of its total option flows in one day, you're going to get volatility. It is important to note AMC had about 42% of the 2.71 million options expiring today, which would represent approximately 1.11 million options, so a lot of the flows you're seeing today are options being closed. So why is the stock rising?

Simply put, AMC had a lot of put buying leading into the FOMC and most of these puts were short dated to expire this week. A lot of these put protection plays (long puts) are now being unwound, which is contributing to part of the 20% gains on the day as the dealers unwind their short hedges, thus allowing the stock to gain more easily.

What Next: Traders should expect a large amount of volatility next week with the large amount of options expiring to end this week. That plus the fact the FOMC coming in benign means that the market is primed for a Santa Claus rally, and most of the beaten down stocks over the last several weeks could see a boost next week.

Looking ahead, the largest expiry by open interest is the Jan. 21 monthly op-ex next year where there is strong open interest at the $30 and $40 strikes (image below).

If the $30 level can hold for the rest of the year, then option traders will target a $40 touch by the Jan. 21 expiry. 

If the stock fails to hold the $30 strike, then it doesn't have material interest until the $22 and $20 strikes, just below where today's launch started.