Robinhood Markets Inc. jumped a whopping 50% on Wednesday after a wave of individual investors joined the likes of Cathie Wood to pile on the zero-fee trading platform.
The stock traded as high as $85 in New York before trimming gains to close at $70.39 as the volatility triggered at least three trading halts. The frenzied share buying pushed the company’s market value to a peak of $65 billion from $29.1 billion after its debut on Nasdaq last week.
Robinhood shares spike as much as 82% as retail investors pile in
We’ve seen this movie before, and this pump and dump of Robinhood will not end well for many traders. Robinhood’s revenue streams will come into question once the government applies rules to payment of order flow.
Retail investors’ participation took off in the past couple of sessions after a lukewarm reception. According to data compiled by Vanda Securities Pte, they bought a net $19.4 million worth of Robinhood shares on Tuesday to make it the sixth-most-purchased stock and 11th-most-traded security on retail platforms.
Trader chat rooms, such as those on StockTwits, and Twitter feeds were aflame with mentions of Robinhood’s surge. Users compared the rise to the massive rallies staged by so-called meme stocks like GameStop Corp. and AMC Entertainment Holdings Inc. earlier this year.
The retail investors trading boost came alongside Ark Investment Management’s move to increase stake in the company. Ark Fintech Innovation ETF bought 89,622 Robinhood shares in the previous session as they surged 24% to close above their IPO price for the first time.
Some traders pointed out that partial options trading data for the company were coming through for the first time. The most actively traded options on Robinhood in Wednesday’s session were $70 calls that expire on August 20. A company can not have options traded on its stock until at least three days after its IPO, and options activity may increase share price volatility.
Individual investors “love using options” which has likely gotten them more involved in Robinhood today, Matt Maley, Chief Market Strategist at Miller Tabak & Co., said. “When they buy these options, the dealer has to hedge themselves by buying the stock. When they buy a lot of call options, the whole thing feeds on itself for a while.”
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