AMTD Digital is a Chinese high-tech company that last July issued its shares in New York. The issue price was 7.8 dollars, and with the help of the issue the company raised 125 million dollars. Yesterday, the stock price was already at $248, after jumping by 200%. And today the price already reaches 350 dollars per share, or a value of 57 billion dollars. Totally crazy. It will end in blood for the small investors who flock to the stock.
One of the possible explanations for the jump is a small amount of floating shares, only 19 million shares, and high demand with a minority of sellers. The traders who try to ride the trade further increase the demand, and the result is a stock that soars without any economic logic.
Short squeeze process at its best – The percentage of shorts is large on the stock. The shortists think it should go down because economically the price seems high. But things do not always work out according to the economic understanding. Then the shorties can be caught with their “pants down”. Shortists, who hold a short on the stock (sold the stock), need to close it by buying shares, in order to pay back the lending broker. And when a stock goes up, and the shortists close the short (by buying shares) due to the losses they accumulated following the increase in the stock price, this action fuels the increases even more. And that’s how you enter the short squeeze move – forcing the shorts to close a position.
This is not the first time this has happened to the Chinese stock. On July 27, the stock went on a crazy run by any possible standard, of 11,500%. A move that brought it to a market value of over 300 billion dollars. From a price of 20 dollars, up to a price of 2,500 dollars.
Yesterday the company admitted that it had no idea what was going on. “To the best of our knowledge, there are no circumstances or events related to the company’s business and its activities since the date of the issue,” the company said at the time.
The move is similar to the move that took place in January 2021, with stocks like Gamestop, AMC, or Beth Bed and Beyond about a month ago. We all saw how this move ended – the stock crash and the small investors losing a lot of money. But in the meantime there is a game and it is the best game in town – a company that has become a hot name on Wall Street and on the way is jumping by thousands of percent.
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