Shares of brokerage Robinhood Markets (HOOD) have been slammed in recent sessions amid a selloff in cryptocurrencies. One trader sees a further decline in the coming months.
That’s based on the February 2023 $4 puts. With 98 days until expiration, 3,284 contracts traded compared to a prior open interest of 150, for a 22-fold rise in volume on the trade. The buyer of the puts paid $0.65 to make the bet.
Shares recently traded just over $8, so the stock would need to be cut in half for the option trade to move in-the-money. Given that shares lost a third of their value in the past week, such a move is possible in the next few months.
The brokerage is already down 71 percent over the past year. Retail trading has stalled out amid a declining market, which has hurt the company’s bottom line.
Action to take: Investors can look for better managed brokerage firms to invest in.
Robinhood’s focus on fractional trading and small retail investors was built on a payment for order flow system. This led to zero fees for users, but others could see trades and front-run them. Unsurprisingly, this has proven to be an unpopular model with users.
For traders, the puts are an inexpensive way to bet on the company’s further decline. Chances are a drop in the stock will peak before the option expires, so look for the share price to stop falling and take profits on the trade.
Disclosure: The author of this article has no position in the company mentioned here, and has no intention of trading after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.