Carmike Deal Boosts AMC Entertainment Holdings Inc (AMC), Burns Option Bears

AMC Entertainment Holdings Inc (NYSE:AMC) has agreed to buy Carmike Cinemas, Inc. (NASDAQ:CKEC) for $1.1 billion

Mar 4, 2016 at 10:50 AM
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AMC Entertainment Holdings Inc (NYSE:AMC) and Carmike Cinemas, Inc. (NASDAQ:CKEC) are both sharply higher, after AMC agreed to buy its smaller rival for $1.1 billion, or $30 per share. While shareholders may be pleased with the gains, the same may not be true of certain option traders.

Specifically, put buying on AMC has been very popular in recent months. During the last 50 days, 1.51 puts have been bought to open for every call across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX -- a ratio that outranks four-fifths of all other readings from the prior year.

While option traders have been bearish toward AMC Entertainment Holdings Inc, the opposite is true among the brokerage crowd. Nine of 11 analysts currently rate the stock a "buy" or better, with not a single "sell" opinion to be found. What's more, AMC's consensus 12-month price target of $30.14 is still more than 12% above current trading levels, even though the shares have shot 4.3% higher today at $26.81, and are set to take out their 40-week moving average for the first time since late July.

Meanwhile, CKEC has spiked 16.6% to trade at $29.28, just below AMC's buyout offer. This is likely putting the hurt on short sellers. Carmike's short-interest ratio stands at 7.60, meaning it would take shorts nearly eight sessions to buy back their bearish bets.

Options activity is off the charts today on Carmike Cinemas, Inc., with over 5,300 contracts on the tape -- by far the most volume the stock has seen in the past 12 months. In the lead is the September 30 call, which traders are buying to open.

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