The only reason that counts: Robinhood ran out of collateral for GME and AMC and other high vol names. Those who bitch about this just don't understand how markets operate (or care for that matter)
First principle: Wall street, like the casino of Vegas, never loses!
Second Principle: Pigs always end at the slaughter
Looking at Gamestop (GME) you know it's a bubble, trend following this kind of volatility (750%) tells you the stock can go to zero as it can go to $900. Fundamental of the company at $10.00 showed the company possibly undervalued but a price of $360. Well, that's just a mania.
A few months ago, Hertz (which was in chapter 11) tried to do a new share issue -- prior to the reorg. You knew that ANY investor that bought these shares (maybe cheap) was 100% certain of getting wiped-out. The SEC shut it down despite a huge appetite for the issuance.
What is also important is that the daily traded volume of the shares is equal to the float (shares not owned by insiders). Insiders have been selling (at around $30/40 range) for the past year.
Michael Burry (of the Big Short fame) has been a fan of the stock since 2019 -- he was far more famous on wall street for a value picker -- that's how he got money for GS, and that he was a deeply analytical guy.
People who trade on Robinhood are not that! They have little idea of Volatility, p/e, and the risk of trend following. The reality is that Robinhood took the view that if its client's trade went "south" they would sue Robinhood. So Robinhood made it hard for its client to trade (probably buy) the shares of AMC and GME.
Finally, the reason Robinhood had to reduce trades was a good one; the rise in Vol and the settlement for GME and AMC of T+2 creates a huge liability for Robinhood in terms of collateral they have to post. Hence the 600 MM. BTW everyone did the same thing for the same reason.
More news, last week, Robinhood got a call for collateral of US$ 3 billion -- up from US$ 30 million. Eventually, Robinhood was able to reduce the call to $600 million. Still, Robinhood had to borrow that from somewhere (it turns out the banks were happy to oblige, as were its shareholders).
This morning, Robinhood is down 25% to $246. That's got a hurt those who bought it at $350...
UPDATE: Turns out Robinhood is even more of a "shitshow" obviously the firm was not ready for the business volume that the GME and other short squeeze generated - its back office is "inadequate" for the volume of clients and the volume of business. But get this Robinhood was selling its order flow to Citadel...basically one of the biggest hedge funds knew where the little people were doing! Now a this is very nice, the truth is that the whole game was caused by the options market's gamma squeeze. So at the end of the day, Robinhood was a "sideshow" Still
Comments