Robinhood shares halted after massive spike, looming short squeeze
Robinhood’s surging shares were repeatedly halted on Wednesday after a massive spike, with some investors speculating that its dizzying rally is being driven by anticipation of a short squeeze.
Moments after the opening bell on Wednesday, the stock climbed as high as $85 — up a staggering 81 percent from Tuesday’s closing price of $46.80 and briefly giving the company a market capitalization of more than $71 billion. That’s pricier than Intercontinental Exchange, which owns the New York Stock Exchange.
Robinhood shares finished the day up 50 percent at $70.39.
The rally marked a stunning turnaround for the stock, which last week had sunk more 10 percent in a disappointing IPO before finishing its first trading session below $35 a share.
Wednesday was the first day that investors can buy put and call options for Robinhood — and some market watchers saw that as the key reason the stock surged higher despite a lack of news. Buying one call option gives traders the option to buy multiple shares of the stock at a certain price, and issuance of those options can push demand for stocks higher.
“The availability of call options is adding to the surging price — exacerbating the hyperbolic move in the stock,” Tim Anderson, managing director at TJM Investments told The Post.
Others think the increased buying could partly be a copycat trade. Controversial stock picker Cathie Wood, who runs Ark Invest, has snatched up millions of HOOD shares during the past few days — and acolytes could be following in her footsteps.
With this week’s dramatic jumps, the app that helped give rise to super-volatile meme stocks like GameStop and AMC has become a meme stock itself. Between Tuesday and Wednesday afternoon, Robinhood was mentioned 1897 times on Reddit’s WallStreetBets forum — compared with just 212 mentions of AMC, according to data from Quiver Quant.
On Tuesday, the HOOD rally was partly led by retail traders – “retail volumes experienced a tenfold increase relative to Monday” according to a report from Vanda Research.
Every quarter there’s a new meme,” Ihor Dusaniwsky of S3 Partners told The Post. “Robinhood is the summer blockbuster.”
Still, the tremendous volatility has a downside. Institutional investors are paying close attention to retail investors – and many are betting their trades could come crashing down.
Even as ‘HOOD’ reaches fresh highs, experts say all signs point to Robinhood being one of the most popular targets for short sellers. The stock borrow rate — how much it costs to borrow a stock and short it — is trading at unusually high levels. Typically, the borrow rates to short a stock is 0.5 percent. For Robinhood, the rate is 40 percent to 90 percent, according to S3.
At a 90-percent stock borrow fee, short sellers need HOOD’s stock price to drop more than 7.5 percent over the next month and 22.5 percent over the next three months just to break even.
“It’s extraordinarily rare for rates to be this high,” Dusaniwsky adds. “And that’s only if you can get the shares.”
More comprehensive Robinhood short data is expected in the coming days.