Making It Out of the $HOOD
A glimpse of hope for a failing broker was brought to light today. Robinhood was founded back in 2013 by Vladimir Tenev and Baiju Bhatt. The brokerage was built around the idea of commission-free trading. This sparked a movement across all brokerages over the past few years as other companies like Charles-Schwab, TD Ameritrade, and Fidelity started lowering their fees to try and compete. During the pandemic, Robinhoods popularity grew, and in 2021 it had rounded up 21 million users. As their popularity grew throughout the covid bull market, it abruptly ended when the $GME mania happened and the buy/sell buttons were vanishing from applications from various users. This caused a backlash from the community and ended with their users migrating to other platforms offering better fills, trading options, and “safety”. Robinhood’s monthly active users earlier this year fell to 17.3 million last quarter from 18.9 million in the third quarter. Robinhood became its own worst enemy.
Following the company’s IPO in July of last year, it peaked at $85.00 a share and has since declined 76% from its initial price. While the brokerage has had some questionable actions in the past, it paved the way for near-free commission trading as the company’s valuation began to decline, and ideas circulated with potential acquisitions in the future by more respected brokers making an offer for the small company. On Monday, FTX owner Sam Bankman-Fried was said to be considering an offer to purchase Robinhood. For those unfamiliar with FTX, it is a crypto exchange that has been in almost every advertisement over the last year. Superbowl, Youtube creators, and Twitch streamers. FTX solely focuses on crypto but a purchase of Robinhood would be a smart move by Fried, giving himself exposure to two exchanges.
Bloomberg reported the FTX interest Monday, noting that its billionaire founder, Sam Bankman-Fried, has expressed interest in buying the Menlo Park, California-based group. The stock traded higher throughout the session, closing up 14%. As I mention somewhat frequently, options traders bet on the move prior to the announcement. Options expiring this Friday (July 1st) traded 10x the open interest from the 8.5 strikes to the 10 strikes. Thanks to @WallStJesus, some traders were able to bank on the move.
It seems that FTX is on the prowl during this bear market. According to the Wall Street Journal, FTX has expressed interest in purchasing BlockFi, another crypto exchange but has only offered a $250 million line of revolving credit after BlockFi was forced to liquidate a large client. I think Fried will make the right move on either company or both and for those looking to bank on a potential acquisition, it would be safer to purchase shares of $HOOD rather than options because the move has likely already been priced in and it is a guessing game at what a potential purchase price might be.