• Robinhood Markets Inc (Nasdaq: HOOD) share price closed at US$70.39 per share on Wednesday (04 August 2021)
• The ‘meme stock’ has shot past its IPO price by 85% despite the tepid debut
• Options trading has begun, and big-name investors also boosted confidence
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Robinhood stock price: what drove the surge?

California-based Robinhood’s stock price soared by 50.4% on Wednesday to finish at US$70.39 on a heavy volume of 174.4 million shares changing hands, less than a week after the online brokerage went public in a disappointing debut.

The so-called ‘meme stock’ surged as much as 82% to touch a session high of US$85 on Wednesday, giving it a market value of US$71 billion. The volatility prompted multiple trading halts on the Nasdaq exchange, The Financial Times (FT) reported.

After four straight days of gains, Robinhood’s market capitalisation has ballooned to US$58.9 billion, surpassing hundreds of blue-chip US firms such as Twitter Inc, carmaker Ford, and asset manager T Rowe Price.

This week’s reversal of the California-based company’s underwhelming debut came as retail investors on social media embraced the stock.

It was also triggered by the new availability of options contracts tied to Robinhood’s shares, FT said, citing traders and analysts.

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Retail investors flock in, options trading starts

The stock began trading last Thursday (29 July), but ended up tumbling 8.4% from its offer price of US$38 per share.

That was among the worst debuts in US initial public offering (IPO) history, for a flotation of its size. Dealogic data showed that Robinhood chalked up one of the biggest first-day percentage declines by US-listed IPOs raising at least US$2 billion.

But retail trading volume surged tenfold on Tuesday, propelling the stock price’s 24% increase, according to Vanda Research.

Also brightening sentiment on Robinhood were big-name investors such as asset management firm ARK Invest’s founder Catherine Wood. On Tuesday, her Ark Fintech ETF bought another 89,622 shares of Robinhood, with the stock now making up 0.9% of its portfolio, Reuters reported.

As Wood is known as a star stock picker, her latest sizable position was seen as a ‘vote of confidence’ in Robinhood, said private-equity firm Great Hill Capital.

In addition, Wednesday was the first day that investors could trade options on Robinhood shares. More than 293,000 contracts changed hands by the afternoon, roughly evenly spread between bearish puts and bullish calls, Reuters reported.

Contracts that were betting on Robinhood exceeding US$70 per share by 20 August 2021 were the most actively traded, Reuters added. The next most traded contracts were puts that would come into play if the stock falls below US$20 per share by mid-August.

FT noted that dealers selling bullish call options to investors would typically buy Robinhood stock to hedge their risk, pushing the market in an upward direction.

Kelvin Ong | Financial writer, Singapore
05 August 2021