A confluence of Reddit enthusiasm, retail interest, and options activity helped catapult Robinhood (NASDAQ: HOOD) shares to the moon this week.
172 million shares of HOOD changed hands on Wednesday, the day the stock first opened to options trading. A stampede ensued; retail investors chased Robinhood's market cap ever higher. At one point, the company reached $71 billion in value, making it more valuable than the very exchange on which it trades. At its highest, Robinhood's was selling at $85 a share. Then the powers that be raised the floodgates, and trading of Robinhood was halted due to volatility.
The gates have since been lowered. Robinhood is trading at roughly $56 a share at the time of this writing, well off of Wednesday's highs.
Nevertheless, Robinhood's sudden rebound took many on the street by surprise. Interest in the company post IPO was tepid to say the least. Robinhood had set aside 35% of its shares for its retail investors but only managed to offload 20 to 25% of them.
Some analysts point to Cathie Wood, head of ARK Fintech Innovation ETF and a guiding light to many a retail investor, as the source of Robinhood's seemingly unstoppable meme-mentum. On Tuesday, Wood expanded her fund's position in Robinhood by 89,622 shares, adding to the 3.15 million she'd already acquired since the stock's debut. This move, coupled with the opening of options trading, may have sent the message boards over the edge.
By Wednesday, HOOD was the top tracked ticker on Reddit's r/WallStreetBets. That same day, the stock was the most traded name on Fidelity and was the second-biggest mover in the whole U.S. market, according to Dow Jones Market Data.
Robinhood was "trading on emotion," Hugh Tallents, senior partner at consultancy CG42, told Bloomberg. "There are major believers and major naysayers, and they all are at war with each other, and the options market enables that to a scale even greater than just buying and selling the asset itself."
On the options front, more than 300,000 contracts changed hands on Wednesday, according to Cboe Global Markets, an options clearinghouse. The activity indicates that traders were placing bets all across the board. With the balance of puts, betting on Robinhood's downfall and calls, betting on Robinhood's triumph, swinging back and forth throughout the day. In the end, the majority of contracts were call options, set to expire in just two weeks, with a strike price of $70-- marking a strong vote of confidence by some retail investors in Robinhood's continued climb, at least for now.
Lawmakers and a slew of talking heads have decried the meme-stock trend, claiming that message boards like r/WallStreetBets are harmful to less-educated investors, who can't afford to bet on companies that may have bad fundamentals.
Nevertheless, Vlad Tenev, Robinhood co-founder and CEO, defended the Reddit trade in an interview with CNBC's Andrew Ross Sorkin. Tenev argued that the trend gives new life to certain beloved albeit cash-starved companies.
"It's a real thing. There's customers that love these companies, they want them to thrive," he said. "You're seeing [meme stocks] also get resources that allow them to hire really good management teams, in some cases, and then build for the future."