Not All Good In The HOOD

Hey Traders,

One of the big stories of last week …

(Besides the official debut of Capitol Gains, a “secret project” Frank and Andrew have been working on behind the scenes for months …)

Was the hotly-anticipated IPO of Reddit’s favorite trading platform.

That’s right, the brokerage of choice for meme stock traders everywhere is itself available to trade on the open market.

In an unusual move, Robinhood (Ticker: HOOD) reserved a significant portion of its shares for purchase by its customers.

Judging by its first day of trading … the “democratizing” strategy didn’t seem to pay off.

HOOD’s market debut was not one to remember for the fee-free brokerage platform. It seems its quickly-growing user base wasn’t enough to support the shares, which fell 8.4% in its first day of trading.

Chart courtesy StockCharts

For those keeping track, that clocks in as the worst performance for an IPO of Robinhood’s size.

Where are the meme stock supporters now?!

In spite of the anticipation surrounding HOOD’s initial public offering – which was supposed to be one of the hottest IPOs of 2021 – demand for the shares was lukewarm, and wasn’t enough to keep HOOD at its initial $38 offer price – on the lower end of its expected range to begin with – which would have given the “democratizing” investing app a valuation of approximately $32 million.

Instead, HOOD tumbled 8.4% to close at $34.82 on Thursday, wiping about $3 billion off its valuation.

Friday saw a slight recovery … but I mean slight, with the shares up less than 1% on the day.

And look at that trading volume … it seems like the “year’s hottest IPO” is getting the cold shoulder from traders.

Although HOOD actually posted a profit in 2020 – not a common feature among new IPOs – the Gamestop (Ticker: GME) meme fiasco earlier this year cost the brokerage platform over $1 billion in emergency fundraising.

In spite of HOOD’s impressive user growth so far in 2021, the company is forecasting a drop in trading volume during the upcoming quarter, which doesn’t bode well for a platform that depends largely on selling its order flow for revenue.

If fellow fintech Coinbase (Ticker: COIN) is anything to go by, HOOD could have a long road ahead of it.

Chart courtesy StockCharts

The hotly-anticipated IPO of the crypto keeper was also disappointing, with the shares currently sitting 40% below their April IPO price of $381.

That hasn’t stopped Option Pit’s Andrew Giovinazzi and Frank Gregory from making some coin on COIN, however …

Skip to minute :54 to see how they did it here. 

Of course, not everyone’s turning their backs on HOOD. The Cathie Wood’s-led ARK Innovation ETF (Ticker: ARKK) gobbled up 1.3 million shares.

And personally, I also think HOOD could be headed for a pop … but when it happens, I don’t see it sticking. For now, I would try to steer clear of the brokerage’s newly-offered shares.

And as far as options are concerned, I likely won’t be the first trader hopping into HOOD’s pits when they open this week. Early options trading are usually significantly overpriced, with market makers pricing in high implied volatility (IV) to account the risk of trading on a stock with no trading history, and no historical volatility, to base expectations off of.

Your Only Option,

Mark Sebastian

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