Shares of the Silicon Valley online broker, Robinhood soared on Wednesday, extending a wild rally in the newly public stock trading app’s stock. But trading was halted for volatility several times, with some investors speculating that its dizzying rally is being driven by fears of a short squeeze.
The stock which opened last Thursday at $38 per share closed up 50.4% at $70.39 per share Wednesday August 4, bringing its weekly gain to more than 100%. Robinhood shares reached $85 per share at one point on Wednesday, an 81% gain from the previous day which closed at $46.80. The company’s market capitalization grew to more than $65 billion.
The volatile stock surpassed its IPO debut volume of 102.5 million shares, trading over 104.6 million shares on Wednesday, with experts saying that all signs point to Robinhood being one of the most popular targets for short sellers.
The stock borrow rate — how much it costs to borrow a stock and short it — is trading at unusually high levels. Typically, the borrow rates to short a stock is 0.5 percent. For Robinhood, the rate is 40 percent to 90 percent.
At a 90-percent stock borrow fee, short sellers need HOOD’s stock price to drop more than 7.5 percent over the next month and 22.5 percent over the next three months just to break even.
“It’s extraordinarily rare for rates to be this high,” Ihor Dusaniwsky of S3 Partners told The Post. “And that’s only if you can get the shares.”
It is unclear exactly why the shares surged on Wednesday. But CNBC reported that ARK Invest’s Cathie Wood purchased 89,622 shares of HOOD in ARK Fintech Innovation ETF on Tuesday, a position worth roughly $4.2 million based on Robinhood’s closing price of $46.80 on Tuesday.
The position added to the approximately 3.15 million shares Wood has bought of Robinhood since the company’s debut last week. Attention from the popular investor typically cause a rise in stock price.
“It looks like ARK Investments took a big stake and it would seem as though the retail traders are getting involved as well,” said John Heagerty of Atlantic Equities. Heagerty has an overweight rating on Robinhood and $65 per share price target.
“It’s not normal for a stock of that size to move quite that quickly. I think it would deter institutional investors,” added Heagerty, who still feels there is a lot of value in the platform Robinhood created.
Robinhood publicly filed its IPO documents early last month and revealed staggering growth. The controversial investing app which was at the center of Wall Street’s recent retail trading frenzy surprised investors by enabling users to trade stocks and ETFs for free on its mobile app.