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Is Robinhood The Next Meme Stock To Explode?

Is Robinhood The Next Meme Stock To Explode?

Robinhood, the “democratizing” zero-fee trading app that helped create the retail trading frenzy that led to the wild ride with Gamestop and AMC Entertainment stocks, is now it’s own wild ride. 

It’s a self-fulfilling prophecy.

Robinhood launched its IPO on July 29th at a price of $38 per share. Since then, it’s been a rollercoaster of volatility. 

In its first day of trading, the stock dropped 10%, made some minor recoveries later in the day, and closed at a price of $34.82. 

In its first full week of trading however, the stock jumped 57%, to $55.01, well above its initial public offering price of $38. 

Since then, there have been major percent increases and decreases each day to the value of the stock. From highs of up 50% to lows of  down 28%, share prices have been very volatile day to day. 

Speculation abounds as to what is causing all the volatility, but nothing more concrete than “meme” has emerged. 

The push is that this is one of the more exciting IPOs of the year with a stock that is single-handedly responsible for a sea-change in trading, opening up a new world to “retail” investors that had until then been the purview of Wall Street alone. 

Part of the pull may be that many investors are still resentful toward Robinhood for what happened earlier this year.

Robinhood temporarily halted users from trading Gamestop (GME) on January 28th, due to the fact that they didn’t want the clearing house to get caught not having enough funds to pay collateral. But the issue runs deeper than that. On a popular Reddit forum known as r/wallstreetbets, users decided to capitalize on the fact that Gamestop was a favorite stock for hedge funds to short. Hedge funds bet big on the company’s shares to decline in value, so redditors opted to buy the stock, causing the stock price to go up.

Problems arose when Robinhood closed down trades in the stock, preventing users from buying more of the growing stock which caused the price to drop majorly. Many people were angered by this, and say that Robinhood closed the stock to offset Wall Street insider losses, as opposed to its customer base. 

This is a reasonable sentiment, which led to the Financial Industry Regulatory Authority (Finra) fining the platform $70m – the agency’s largest penalty ever – over “systemic supervisory failures'’ and hurting investors by giving them “false or misleading information”. 

This resent may have contributed to the initial drop, but it seems that perceptions of the company are very mixed at this point. Some users of these stock subreddits are saying that they won’t even touch the stock, while many others believe that it could be a worthy investment considering it’s a brand new IPO. 

Despite Robinhood’s shenanigans, many seem to be jumping at the opportunity to make a quick buck from the stock.

Robinhood’s stock has pretty much been up and down each day on the market. This past week it had a low of $37.91 on Tuesday, and a high of $70.39 that very next day. 

Many users are playing the bull and bear game that is keeping the stock volatile. 

It’s not just regular users buying stock in Robinhood, either. It's likely that big mutual funds, hedge funds and other institutional investors are in on this. That could create a short squeeze with so much options trading going on, which would lead to them trying to cover their losses. Just last Tuesday, 75,000 calls and 95,000 puts had already traded in the stock by noon. 

This is a dangerous game to play because it could cause a repeat of what happened early this year, which is likely to lead to a lot of lost savings. Because so many users are options trading with Robinhood stock, this could last for months before tapering off and becoming more stable. 

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