Redbox Entertainment (RDBX) shares rise again as retail remains stubborn and shorts become scarce

  • Redbox shares rose again on Wednesday after stock markets recovered.
  • Shares of RDBX closed 9% and are currently rising another 24% in preliminary markets on Thursday.
  • Redbox is to be acquired by Chicken Soup for the Soul Entertainment for approximately $ 0.51 from the CSSE.

At first glance, this looks great for Soul Entertainment Chicken Soup (CSSE). It agreed to buy Redbox Entertainment (RDBX) for 0.087 CSSE shares. At the current closing price of CSSE shares, this suggests a price of about $ 0.51. However, if the deal is so big, why are CSSE shares still falling?

CSSE shares fell 12% on Monday, 18% on Tuesday and 5% on Thursday? Chicken Soup has agreed to take on Redbox’s substantial debt of nearly $ 325 million. Redbox shares, meanwhile, have risen sharply. The reason? Probably a massive short squeeze, which was very well organized by retailers, seems to be the culprit. These traders identified too short a stock with a small market capitalization, which means that oversized moves are possible.

Redbox Stock News: Shorts are not possible, so what now?

Given the reported huge percentage of RDBX that is already short, this was a classic candidate for short shrinkage. The short rate is reported to have risen to over 200%. Of course, your author failed to take any short-term stocks, so I had to look for other strategies to take a downward position. Retail may be in this for short-term pop, but I’m looking for a medium-term downturn. A case can be made for both.

Redbox is a legacy DVD retail business that operates through pavilions in the United States. Clearly, his time is up and few of us own DVD players, let alone rent a DVD, when streaming has completely wiped out the DVD rental market. Redbox (RDBX) was on life support before Chicken Soup intervened. I still can’t understand why they want to pay so much for the deal. They do not give cash, but accept Redbox’s significant debt, which is currently $ 325 million. It also seems very unlikely that Redbox or the merged entity will be able to meet the forthcoming debt obligations. The junk bond market is currently in a state of almost no bidding, with yields rising and issuance collapsing. It was widely reported last week that the mortgaged securities had not been traded. Heavy debt companies will face criminal refinancing opportunities.

Time is of the essence here. As no stock is available for borrowing, shorting is not an option. Buying this is not for me because of the huge concerns about the business model. At current prices, Redbox costs $ 700 million. With the explosion of current volatility, selling call options can be profitable, as you take advantage of selling insanely high volatility, as well as accepting a bearish bet on the underlying asset. However, selling options is extremely risky and can expose you to unlimited losses, so we would not recommend this. Buying puts is the safer option, even if you pay high prices for volatility.

For those of you who prefer a shorter-term buying and squeezing strategy, this continues to work well. However, be careful when moods change, as there is probably a sharp turn. This has happened with all pandemic short squeezes. The classic signs to watch out for are when stocks become available for borrowing from your broker, when pre-market profits are not held back in the regular session, when there is a drop in volume or other risky assets fall. Always manage your risk and have a strategy for going out or stopping.

Redbox stock forecast

This is not a stock for technical analysis. A pure short press game, RDBX will probably end up with or without a merger deal.

RDBX stock chart, daily

The author has short OTM calls and long OTM puts in Redbox (RDBX).

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