Robinhood shares surge 82% in second day of volatile trading

Robinhood Markets   jumped a whopping 82% 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 earlier in New York before cutting gains roughly in half as the volatility triggered at least three trading halts. The frenzied share buying pushed the company’s market value to a peak of $65bn from $29.1bn after its debut on Nasdaq last week.

‘We’ve seen this movie before and this pump and dump of Robinhood will not end well for many traders,” said Ed Moya, senior market analyst at Oanda. “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. They bought a net $19.4m worth of Robinhood shares on Tuesday to make it the sixth-most-purchased stock and 11th-most-traded security on retail platforms, according to data compiled by Vanda Securities.

Total retail volume on Tuesday surged about tenfold from the previous day, the data shows. In the first three hours of Wednesday’s session more than 100-million shares changed hands, more than five times what was seen in recent days.

Trader chat rooms, such as those on StockTwits, and Twitter feeds were aflame with mentions of Robinhood’s surge. Users compared the surge to the huge rallies staged by so-called meme stocks such as GameStop and AMC Entertainment Holdings earlier in 2021.

The stock was the most traded company on Fidelity’s platform with more than 20,000 buy orders coming from customers. That’s more than double the number of buy orders seen for AMC Entertainment which saw the second largest number of buys.

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 at $46.80 apiece.

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 was $70 calls that expire on August 20. A company cannot 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.”

The jump in activity may remind investors of AMC Entertainment’s surge in June when a phenomenon known as a “gamma squeeze” was likely in play for the quick surge. Gamma squeezes happen when an options dealer buys a rising stock to balance their exposure to contracts they have sold, which can further fuel gains.

Bloomberg News. More stories like this are available on bloomberg.com