What Options Trading Says About Robinhood’s Big Day

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Vlad Tenev, left, and Baiju Bhatt, founders of Robinhood, connected Wall Street successful little Manhattan past Thursday aft their institution went public.

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In the past twelvemonth and a half, options trading has hit grounds highs arsenic retail investors plow wealth into calls and puts. All-or-nothing “YOLO” options bets person go communal connected platforms similar Robinhood Markets, which has opened the products to a caller procreation of traders.

Now, Robinhood (ticker: HOOD) itself is successful the midst of an options frenzy, which whitethorn assistance origin the banal to beryllium volatile for an extended period.

Just 5 days aft its marketplace debut, options enactment astir Robinhood has been spiking, and is highly precocious adjacent compared with different blistery caller stocks, according to Susquehanna International Group’s Christopher Jacobson.

As of astir 12:20 p.m. Eastern time, astir 75,000 calls and 95,000 puts had traded, helium noted. Compare that with the 13,000 calls and 15,000 puts traded successful Coinbase Global (COIN) banal connected the archetypal time that options were disposable for that banal earlier this year.

The highest measurement successful immoderate Robinhood-related options merchandise was for the $70 telephone enactment — an highly bullish stake for a banal that made its debut past Thursday astatine $38. Traders were clearly onto something, fixed that shares were precocious trading astatine $69.25, up 48% connected the day.

That said, astir radical successful the options marketplace are wagering that the banal goes successful the different direction.

Christopher Murphy, Susquehanna’s co-head of derivatives strategy, noted that the bulk of the options enactment was successful bearish puts. The astir progressive of those contracts were puts that wage disconnected if Robinhood falls to $30 oregon $20 by Aug. 20. It’s not yet wide whether they are retail oregon organization players.

“All of it appears to beryllium tiny lots, but that doesn’t needfully mean it’s each retail,” helium wrote. “Because the options are truthful bladed and the volatility is truthful high, it makes consciousness each the trading (whether organization oregon retail) would beryllium successful tiny lots.”

Options trading tin sometimes impact the underlying banal itself. Companies that merchantability calls, for instance, often bargain the underlying banal itself to hedge against imaginable losses, and frankincense tin origin much buying unit connected a banal — adjacent resulting successful what is known arsenic a “gamma squeeze”.

Murphy, however, doubts that’s what’s happening with Robinhood truthful acold — mostly due to the fact that puts presently outweigh calls. “The enactment enactment has an interaction connected stock, but I deliberation the measurement is much apt pursuing the momentum than being the nonstop cause,” helium wrote.

He besides cautioned investors that buying puts successful blistery stocks tin beryllium a unsafe strategy, due to the fact that options premiums get pricier arsenic implied volatility rises. So adjacent traders who get the absorption of a banal close tin extremity up successful a anemic fiscal position.

“Something to support successful caput if buying puts successful Robinhood … we saw situations successful GameStop and AMC wherever the banal yet traded lower, but truthful did implied volatility and those 2 effects canceled each different out, dampening profits to agelong puts adjacent erstwhile banal traded lower,” Murphy wrote.

Write to Avi Salzman astatine avi.salzman@barrons.com

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