Shares of Redbox Entertainment (RDBX) Rise Again as Retail Remains Stubborn and Shorts Become Scarce

  • Redbox stock rose again on Wednesday as equity markets recovered.
  • RDBX stock closed up 9% and is currently up another 24% on Thursday’s premarket.
  • Redbox is expected to be acquired by Chicken Soup for Soul Entertainment for approximately $ 0.51 worth of CSSE.

At first glance, it looks like a great deal for Chicken Soup for the Soul Entertainment (CSSE). It agreed to buy Redbox Entertainment (RDBX) for 0.087 CSSE shares. At the current closing price of CSSE shares, this implies a price of approximately $ 0.51. If it’s a great deal, though, why are CSSE stocks continuing to drop?

CSSE shares fell 12% Monday, 18% Tuesday and 5% Thursday? Chicken Soup has agreed to take on Redbox’s sizable pile of debt of nearly $ 325 million. Meanwhile, Redbox shares have remained very high. The reason? The culprit appears to be a likely massive squeeze, which has been very well orchestrated by retail traders. These traders identified an excessively short stock with a small market cap, which meant that oversized moves were possible.

Redbox Stock News: Shorts aren’t possible, so now?

Given the huge reported percentage of RDBX already shorted, he was a classic short squeeze candidate. The short rate had reportedly increased to over 200%. Of course, your author hasn’t been able to borrow any short titles, so I had to look at other strategies for taking a bearish stance. Retail may be in this for pop in the short term, but I’m looking for the medium term decline. A case can be made for both.

Redbox is a legacy DVD retail business operating through kiosks throughout the United States. Clearly then its time has passed and few of us own DVD players let alone DVD rental when streaming completely wiped out the DVD rental market. Redbox (RDBX) was on life support prior to Chicken Soup’s surgery. I still can’t understand why they want to pay so much for the deal. They are not hoarding any money, but they are taking on Redbox’s significant debt pile, currently at $ 325 million. It also appears highly unlikely that Redbox or the merged entity will be able to meet the upcoming debt obligations. The junk bond market is currently in a near zero state with rising yields and falling issues. Last week it was widely reported that mortgage-backed securities were not bidding. Companies with high debt loads will face punitive refinancing options.

Timing is key here. With no stock available for lending, shorting is not an option. Buying this is not for me due to huge business model concerns. At current prices, Redbox is worth $ 700 million. With the current volatility exploding, selling call options can be profitable as you benefit from selling crazy high volatility and a bearish bet on the underlying. However, selling options is extremely risky and can expose you to unlimited losses, so we don’t recommend it. Buying puts is the safest option even if you pay high prices for volatility.

For those of you who prefer the short-term buy and squeeze strategy, this continues to work well. However, watch out for when the sentiment changes, as a sharp turnaround is likely. This has happened to all pandemic short squeezes. The classic signs to watch out for are when the stock becomes available to borrow from your broker, when pre-market gains fail in the normal session, when there is a drop in volume or other risky assets fall. Always manage your risk and adopt an exit strategy or stop in place.

Redbox stock forecast

This is not a stock for technical analysis. A pure short squeeze game, RDBX is likely to end up even with or without the current merger deal.

RDBX stock chart, daily

The author are called short OTMs and long OTM entries in Redbox (RDBX).

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