Betting Stock Will Fall, Short Sellers Doubling Down on Robinhood

Edited by: TJVNews.com

Seems like the Robinhood stock phenomenon is gaining traction with investors as well as short sellers.

The New York Post reported as of the close of trading on Wednesday, more than 12.5 million HOOD shares or roughly 25 percent of the float were shorted. These statistics came from data from S3 Partners. The Post also reported that the average short interest in a company is 5 percent and it is expected that the short interest in Robinhood is likely to escalate from here,

More than 12.5 million HOOD shares — or roughly 25 percent of the float — were shorted as of the close of trading on Wednesday, according to data from S3 Partners. By comparison, the average short interest in a company is 5 percent.

The S3 Partners report states that “short selling today is once again muted due to lack of stock borrow supply … as well as the high cost to short eating into the expected profits of the short trade.”

Speaking to the NY Post, Ihor Dusaniwsky of S3 Partners said, “With price volatility comes more long-buying and short-selling action.” He added that, “One caveat traders are hyper aware of in 2021? “With meme stocks you never know what could happen next.

As supply expands in the coming weeks, S3 expects this will give traders eager to short stocks even more opportunity to do so, according to the Post report. It was also reported that day traders are taking advantage of the stock’s volatility by jumping on to the shorting bandwagon.

The new data comes after rampant speculation institutions and retail traders could band together to make Robinhood a short target, according to the Post report.

To give some background on the issue, AP reported on Thursday that Robinhood’s stock flew again on Wednesday, and it has more than doubled in four days to follow up what had been a disappointing debut on Wall Street.

Robinhood Markets soared 50.4% to $70.39 in trading that was so feverish that trading was temporarily halted three times in the first half hour after the market opened. It’s a sharp turnaround from last week’s lackluster debut for the stock, when it sank 8.4% from its initial price of $38 on Thursday, as was reported by the AP.

Even ahead of its initial public offering, experts warned that Robinhood’s stock could be primed for a more jagged ride than others on Wall Street because of its popularity among smaller investors.

AP reported that Robinhood reserved a bigger-than-usual chunk of its IPO shares for smaller investors, which fits with its mission of “democratizing finance.” The company has introduced a new generation of younger and novice investors to the stock market, thanks to its zero-trading fees and easy-to-use app. But the move also gave fewer shares to big institutional investors, who have a reputation for being steadier holders of stock for the long term.

Robinhood has found support from some big names on Wall Street. Cathie Wood, a star stock picker who focuses on innovative companies, has bought shares, for example.

AP reported that her flagship ARK Innovation exchange-traded fund owns nearly 4.9 million shares, making Robinhood the fund’s 29th largest holding. The fund has about $25.5 billion in total assets.

Outside of that, though, analysts were grasping for explanations for the surge in the stock. For some, it was reminiscent of the explosive moves higher for GameStop and other “meme stocks” earlier this year, according to the AP report.

Those stocks soared suddenly to heights that professional investors called irrational. Many were beaten-down companies in the midst of a turnaround, and they caught waves of interest from smaller-pocketed investors who egged each other on in online forums to buy more.

AP reported that Robinhood has created plenty of passion, among users and critics alike, and the polarizing effect has shown in its wild, short time on Wall Street. After opening at $38 last week, it fell to $34.82 in its first day of trading. On Wednesday morning, it briefly touched $85.

Robinhood is already delivering the strong growth that Wall Street is always hungry for: Revenue soared 245% last year to $959 million. It has amassed an estimated 22.5 million funded accounts since its 2013 founding, as customers trade everything from stocks to options to crytpocurrencies.

But Robinhood has also paid more than $130 million in recent years to settle a long list of accusations by regulators. Critics say Robinhood encourages unsophisticated investors to make trades too often that may be too risky, and regulatory scrutiny is likely to stay high, as was reported by AP.

Some users are also still angry at Robinhood, according to the AP report and other brokerages for temporarily barring them from trading shares of GameStop and other meme stocks early this year. But as its performance this week has suggested, Robinhood may be turning into something of a meme stock itself.

“I hate Robinhood, but I got in and made $1k in 20 minutes,” said one user on Reddit’s WallStreetBets forum, a central hub for the explosion of meme stocks this year.