The one-month moving average of open puts versus call options on AMC hit 1.7-to-1 on Thursday, the most bearish the measure has been in at least four years, Trade Alert data showed. Puts convey the right to sell shares at a fixed price in the future while calls offer the right to buy shares.

At issue is the company's efforts to convert its preferred class of shares - which trade on the New York Stock Exchange under the symbol "APE" - into its common stock.

The debt-laden AMC raised capital last year by creating preferred shares, which trade at a discount to the common stock. While the common shares finished Thursday at $4.52, the APE preferred shares ended the session at $1.86.

Once AMC is able to convert the preferred shares, the two share classes are expected to merge. Should that happen, traders expect the price of the common stock to fall while the APE shares rise in value.

The company's efforts to convert the shares ran into trouble after shareholders sued it in February, alleging AMC rigged a vote to approve the conversion. AMC did not immediately respond to a request for comment on Thursday.

A judge last week blocked a proposed settlement that would have allowed AMC to proceed with the conversion, which the company said it needs to raise cash and avoid bankruptcy. The move sent AMC's shares higher, disappointing bearish traders who expected news of a conversion to tank the price.

Still, options traders appear to be powering on with their bearish wagers, in effect betting the conversion will eventually go through.

"If the deal does go through, it is reasonable to expect that gap to close, and also reasonable to assume that it would close by AMC falling while APE rises," said Steve Sosnick, chief strategist at Interactive Brokers.

With about 30% of AMC's free float already sold short, according to data from Ortex, investors hoping to bet against its shares would face steep costs for borrowing them. As a result, some traders may be making their bearish bets in the options market instead.

"The short borrow rates are high, which may mean that puts are the best way to get downside hedge exposure," said Brent Kochuba, founder of options analytic service SpotGamma, who noted there may be additional reasons for the bearish bets, including traders looking to take advantage of the stock's heightened volatility.

Analysts also pointed to the company's precarious financial state as a reason for the bearish positioning.

AMC has warned it is burning cash at an unsustainable rate and said there would be an increased risk of the company running out of cash in 2024 or 2025 if it was unable to raise capital.

"This situation is typically considered unfavorable for a company's future stock performance," said Garrett DeSimone, head of quantitative research at OptionMetrics.

On Thursday, AMC shares finished down 10%, while APE shares rose 6%. The stock is down nearly 90% from its 2021 high.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Diane Craft)

By Saqib Iqbal Ahmed