Memes Giveth … Memes Taketh

Hey Traders,

Everything is connected …

No, I’m not getting pseudo-hippie deep with you about us and the environment …

I’m talking about in the market.

That’s one of the things I try to always keep in mind when I’m trading …

“How is this name connected to the rest of the market? Which stocks could affect it?”

And boy, if we haven’t been getting a brilliantly unique illustration of that lately out of everyone’s favorite meme stocks …

Robinhood certainly had a notable first-week-and-change on the market.

After a disappointing initial performance, the shares perked up this week to rocket as high as $85.

Chart courtesy StockCharts

Looks like the WallStreetBets crowd may finally be giving their brokerage of choice some attention …

The opening of the HOOD options pits on Wednesday also brought some interest to the stock, with deep out-of-the-money options drawing significant trader attention — and it isn’t unlikely much of this exceptional volume  is from the retail trading crowd, likely seeking exceptional leverage.

(Note that the 70-strike was the highest strike listed during the first day of HOOD’s options trading.)

Even though the shares weren’t able to hold their Wednesday peak through the remainder of the week, HOOD finished Friday well above its IPO price, and even its initial Tuesday bump. 

Reverse Robinhood

But as Robinhood takes flight … all that money has to be coming from somewhere, right?

Well, it is …

And the OG meme stocks are feeling the sting.

You know what they say about attention spans in this modern era …

People tend to jump from thing to thing, always seeking the newest, latest, and greatest …

And naturally, meme stock players are certainly not the exception to this rule!

It seems as though traders are pulling out of crowd favorites like AMC Entertainment Holdings (Tickr: AMC) and GameStop (Ticker: GME), and re-routing their trading capital into HOOD.

So Robinhood is taking from the meme stocks and giving it to … itself.

Not very Robinhood-like, is it?

Looking at both options volume and stock volume, AMC and GME were quieter than expected last week.

GMC traded fewer expected contracts every day of the week (with only 78% of the total expected number of contracts crossing the line for the week), and number of shares traded was also lower than expected on every day — with the exception of Wednesday, when GME saw a volume spike as the stock was added to the S&P 400 Index.

For AMC, the difference is even more dramatic. Ahead of earnings, you might not expect both options volume and stock volume to die off, but that’s exactly what happened. Compared to expectations, AMC traded lower volumes in terms of both options contracts and spot on every day of the week except Thursday – which happened to be the day HOOD saw a notable drawback.

Comparing the three charts, it’s clear we can see a distinct dichotomy. Taking into account GME’s S&P 400 surge on Wednesday, it seems that the original meme stocks’ suffering is synched with HOOD’s thriving.

HOOD’s performance last week had hallmarks of the typical meme stock surge … heavy buying volume, and tons of action in the options pits (especially out-of-the-money calls, which as I mentioned, many retail traders opt for because of their optimal leverage).

But just because HOOD is looking meme-y doesn’t mean that strength isn’t here to stay.

After all, who would have anticipated GME’s and AMC’s rallies lasting as long as they did?!

Personally, I’m rather bullish on the stock — at least in the near-to-mid term. I think the meme crowd will come out in droves … and I will be keeping an eye on options trading opportunities.

Your Only Option,

Mark Sebastian

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