AMC Entertainment Holdings Inc. (NYSE: AMC) shares surge over 5.26% to $6.4 in pre trading session on Monday as firm’s cash-raising strategy has put it in the crosshairs of arbitrage traders, who see a golden opportunity to profit from a restructure of its share structure.

The movie-theater operator, which became a retail trader favorite during the pandemic, is expected to receive investor approval next month to convert preferred shares ticker APE into AMC common stock. The one-for-one swap is part of a larger plan to raise funds and keep the lights on. The difference between the two assets is now significant and potentially profitable for arbitrage traders.

CEO of Accelerate Financial Technologies, Julian Klymochko stated that this is by far the most appealing arbitrage situation available. You don’t often see a hundred percent plus gross return in six weeks on a high probability deal.

To capture the spread, investors such as Klymochko have used a common risk arbitrage strategy: buy APE units while seeking to protect the downside risk if the vote fails, and short AMC shares. However, such a strategy is fraught with danger.

For one thing, the cost of borrowing AMC shares to sell them short has skyrocketed, making it difficult to even enter the trade. According to S3 Partners data, approximately 22% of AMC shares available for trading are currently sold short, with shorting fees more than tripling this year.

“It’s a home run if you can get a stable borrow. But that’s the issue,” said Cabot Henderson, a merger arbitrage and special situations analyst at JonesTrading.

Both securities have attracted individual investors who have banded together through social media platforms such as Reddit’s WallStreetBets and Stocktwits to squeeze short-sellers who profit when stock prices rise.

“The real question for arbs is how to hedge these positions in the face of the possibility of a massive short squeeze,” Henderson said. According to S3 data, AMC’s common stock has a high “Squeeze Score,” which ranks the risk that an asset will be caught in a short squeeze.

Investors are using a light ratio to hedge, shorting less than one AMC for one APE long, while others are using option strategies on AMC to protect against potentially unlimited losses if investors trigger a short squeeze, he added.