Skip to main content

Updated 2: Was Robinhood right in reducing the ability of its clients to purchase Gamestop shares?

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

Post a Comment

Popular posts from this blog

Spray painting Taylor Swift G650 aircraft (updated)

 First, a bit of paint will not harm anyone.  These climate activities are going to learn two things in the next few days:  (1) Trespassing at an airport is a felony almost anywhere in the world.  That means criminal prosecution.   (2) removing paint from an aircraft is expensive.   So these climate activists are about to find out the reach of the British criminal system and it will not be pleasant, the UK has very strict laws about that, I would be surprised if cleaning the aircraft of all the paint will cost less than $100,000.     I am sure that when they planned (premeditation) this little show they had a very valid logic to doing this.  Tonight, they are probably realizing the depth of their troubles.   I understand that in the UK it's a minimum one-year jail sentence.    Also, good luck travelling with a criminal trespass charge against you.  I am relatively certain that the airline industry will ...
Post a Comment
Read more

Tariffs on inhabited Island

 Two seldom-visited islands, part of Australia, saw a massive increase in the tariffs they will face when exporting to the United States.   The 32,000 residents did not have much to say...being Penguines.   NO kidding, massive tariffs were imposed on Heard Island and McDonald Islands.  According to the Australian government, the last visitor to Heard was about a decade ago.   Never mind the 47% tariff on Madagascar, where the principal export is Vanilla and the GDP per capita is less than $500 a year. Not only a Stable Genus but evidently an administration that took all of two hours to proof the list of countries.    They also treated St Pierre & Miquelon, two islands part of France in the middle of the St Lawrence Gulf...
Post a Comment
Read more

Britain, France and Egypt

 The voters realize now that the Conservative Praty desire to return to 19th-century dominance has driven its hatred of the EU.  The voters realize now that departure from the EU has accelerated Britain's decline and may soon make it irrelevant.  At best it will have to kiss American arses to maintain its standing.  For this, the conservatives were punished.  The decline of Britain was inevitable, competition from Frankfurt and Germany in Finance was bound to grow.  The core of Europe (aka Germany) is aging quickly Macron seems to be winning his bet, the left alliance that won the legislative elections will not remain united for long, since they disagree on about everything.   The Far right though it was about to assume power is once again relegated to the back of the bus.   It may draw its own conclusions, but not all of these are good for France.  The far-right has won nearly 1/3rd of the electorate, that is not something to be ig...
Post a Comment
Read more