Hedge fund Mudrick Capital was making money on AMC. Then it angered meme-stock traders—and its flagship fund lost 10% in just a few days.
A multipronged bet on AMC Entertainment Holdings Inc. boomeranged this month on Mudrick Capital Management LP, the latest hedge fund to fall victim to swarming day traders.
Mudrick’s flagship fund lost about 10% in just a few days as a jump in AMC’s stock price unexpectedly triggered changes in the value of derivatives the fund held as part of a complex trading strategy, people familiar with the matter said. The setback comes months after a group of traders organizing on social media helped send the price of GameStop Corp. and other stocks soaring in January, well beyond many investors’ views of underlying fundamentals.
The development prompted many hedge funds to slash their exposure to meme stocks. Mudrick Capital’s losses highlight how risky retaining significant exposure to such companies can be—even backfiring on a hedge-fund manager who was mostly in sync with the bullishness of individual investors. Jason Mudrick, the firm’s founder, had been trading AMC stock, options and bonds for months, surfing a surge of enthusiasm for the theater chain among individual investors. But he also sold call options, derivative contracts meant to hedge the fund’s exposure to AMC should the stock price founder.
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