Shares of app brokerage Robinhood Markets (HOOD) have seen shares slide nearly 90 percent from their 52-week high as a slowing market has caused retail traders to scale back their activities. One trader sees a further decline ahead.
That’s based on the August $8 puts. With 108 days until expiration, 10,650 contracts traded compared to an open interest of 200, for a 53-fold rise in volume on the trade. The buyer of the puts paid $1.04 to enter the trade.
Shares recently traded around $9.80, so they would need to decline about 19 percent for the option to move in-the-money. Given how financial companies can have a sharp decline during periods of fear about a dropping economy, such a move could potentially occur.
Action to take: Given the company’s business model of offering “free” trading in exchange for order flow data to hedge funds, it’s no surprise that Robinhood has been seen by potential customers as little more than a Sheriff of Nottingham. And with a profit margin of -203 percent right now, it’s clear that shares have some more downside ahead in the coming months.
For traders, the August $8 puts look attractive. They’re inexpensive, and offer a great hedge against a further potential market decline in the coming months.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.