A popular meme on Reddit’s wallstreetbets site shows two people shaking hands. One asks the other which brokerage they use. “Robinhood,” he says. The other immediately goes to wash his hands.
Some meme stock traders may want to wash their hands of
(HOOD) after the broker stopped buying certain popular stocks in January, but Robinhood isn’t going anywhere. In fact, the brokerage’s share seems to be at the center of the phenomenon right now.
Little else explains the stock’s massive two-day gains. After a 24% jump on Tuesday, Robinhood rose another 46% on Wednesday to a recent $68.27.
Is Robinhood a meme stock? The evidence is convincing. Robinhood has several things in common with other stocks that shot higher in 2021, including strong retail interest and significant option activity. Like those stocks, the move doesn’t seem to be tied to any particular news item.
Yet Robinhood is missing one key ingredient that has propelled names like
(GME) to the moon. There is very little short interest in Robinhood compared to the bullish buying going on right now, meaning there is probably no short squeeze involved. Short squeezes forced GameStop,
AMC Entertainment Holdings
(BB) higher earlier this year as bullish buyers forced short sellers to quickly buy stocks to hedge their positions.
However, Robinhood hasn’t been around long enough to make enough stock available to borrow for short selling.
“The upward pressure on Robinhood stock prices is not a short squeeze for the simple reason that there hasn’t been enough time to build a large short position in Robinhood,” said Ihor Dusaniwsky of S3 Partners, a data analytics firm. Barron’s.
Dusaniwsky doesn’t yet have hard data on what percentage of the stock has been borrowed for short selling, but he estimates it’s over 10 million shares. That sounds like a lot, but compared to the 170 million shares that traded Tuesday, “it’s clear that any short squeeze of the outstanding shares being shortened would have minimal effect on Robinhood’s stock price relative to the amount of stock being shortened.” and sell on the long side.”
That said, it is clear that there is a lot of demand from short sellers. The fee to borrow Robinhood shares is between 40% and 90% of the value of the shares, as opposed to the average fee to borrow a share in the
of 0.56%, according to Dusaniwsky.
“Stock lending is a market driven by supply and demand, so this high value means high demand and low supply,” he wrote in an email.
Write to Avi Salzman at email@example.com