Earlier this week, trading platform Robinhood finally filed for its soon-to-come IPO.
If you’ve never used Robinhood before, it’s best described as a “gamified” brokerage platform – which means it uses clever marketing, push notifications, and a sleek interface to hook its users again and again.
This startup has been in the news more than any other this year… and it’s all because of the GameStop feeding frenzy that happened back in January.
We’ve talked about this before, so I’ll give the short version here: Reddit users from r/wallstreetbets discovered an interesting combination of factors they believed could lead to a “short squeeze,” a phenomenon in which hedge funds shorting a particular stock have to purchase huge quantities of shares all at once, driving the price to outrageous highs.
In theory, owning and holding shares of a company before it “squeezes” is a massive profit opportunity – because that stock could suddenly shoot up by hundreds or thousands of percentage points.
Reddit’s hypothesis that a squeeze was coming for GameStop (NYSE: GME) triggered a massive flood of users buying shares of the stock. All that positive activity drove the price from $40 per share to a whopping $483.
Everyday retail investors were overjoyed, celebrating their victory against a group of hedge funds that had placed multibillion-dollar bets on GameStop going out of business.
The squeeze seemed imminent… until Robinhood abruptly shut it down.
During the height of the action, Robinhood informed their users they could no longer buy shares of the stock due to “ongoing volatility.” They could, however, sell their shares.
Over the next week, the platform gradually lessened the restrictions – but the damage had been done. Robinhood had effectively halted the stock’s upward momentum, giving hedge funds the opportunity to gobble up shares and close down their short positions with few consequences.
The backlash was swift and fierce. Here’s why: for everyday investors, it felt like the game was rigged. The “rules” of a free market regularly allow individuals to lose staggering amounts of money on bad bets, but once it’s a big fish losing, they get to cancel the game altogether? Robinhood users asked: how is that fair?
The company has since faced class-action lawsuits, an SEC review and a brutal Congressional hearing… and the scrutiny is nowhere near over.
The question consumers are left with is this: when is a twisted truth marketing, and when is it false advertising? With a name like Robinhood, they expected the platform to act in support of everyday people – after all, Robinhood stole from the rich to give to the poor. To say the brokerage platform failed to live up to its name is an understatement.
Whether you agree or disagree with the startup’s handling of this historic moment, there’s no denying that this couldn’t have come at a worse time for Robinhood. A rage-filled army of betrayed customers is, to say the least, an unhelpful factor to be dealing with before an IPO.
Over the next few weeks, we’ll see what the lasting impacts of this PR nightmare will be for the company and its angel investors.
I do want to note, though, that not all GameStop traders were hurt by January’s events. In particular, a huge number of options traders made out like bandits – some turning small stakes into enough for a down payment on a home or a new car.
These are rare and exceptional gains – but when they hit just right, they can produce returns many times greater than just buying and holding a stock.
This can be especially true when special market conditions coalesce like they did in the case of GameStop.
But as you can imagine, it takes a pretty high level of data analysis to identify opportunities that fit the bill.
Luckily, my colleague Andrew Keene is back with a brand-new system. It’s called Super Squeeze Profits, and it promises to hand readers three potential profit-makers a week.
Click here to learn more – you’ll also get the full scoop on exactly how much money was made by some of the most successful GameStop traders. Once you check it out, you might not be able to resist going down this rabbit hole.
Be back soon!
Until next time,
Neil Patel
If you’ve never used Robinhood before, it’s best described as a “gamified” brokerage platform – which means it uses clever marketing, push notifications, and a sleek interface to hook its users again and again.
This startup has been in the news more than any other this year… and it’s all because of the GameStop feeding frenzy that happened back in January.
We’ve talked about this before, so I’ll give the short version here: Reddit users from r/wallstreetbets discovered an interesting combination of factors they believed could lead to a “short squeeze,” a phenomenon in which hedge funds shorting a particular stock have to purchase huge quantities of shares all at once, driving the price to outrageous highs.
In theory, owning and holding shares of a company before it “squeezes” is a massive profit opportunity – because that stock could suddenly shoot up by hundreds or thousands of percentage points.
Reddit’s hypothesis that a squeeze was coming for GameStop (NYSE: GME) triggered a massive flood of users buying shares of the stock. All that positive activity drove the price from $40 per share to a whopping $483.
Everyday retail investors were overjoyed, celebrating their victory against a group of hedge funds that had placed multibillion-dollar bets on GameStop going out of business.
The squeeze seemed imminent… until Robinhood abruptly shut it down.
During the height of the action, Robinhood informed their users they could no longer buy shares of the stock due to “ongoing volatility.” They could, however, sell their shares.
Over the next week, the platform gradually lessened the restrictions – but the damage had been done. Robinhood had effectively halted the stock’s upward momentum, giving hedge funds the opportunity to gobble up shares and close down their short positions with few consequences.
The backlash was swift and fierce. Here’s why: for everyday investors, it felt like the game was rigged. The “rules” of a free market regularly allow individuals to lose staggering amounts of money on bad bets, but once it’s a big fish losing, they get to cancel the game altogether? Robinhood users asked: how is that fair?
The company has since faced class-action lawsuits, an SEC review and a brutal Congressional hearing… and the scrutiny is nowhere near over.
The question consumers are left with is this: when is a twisted truth marketing, and when is it false advertising? With a name like Robinhood, they expected the platform to act in support of everyday people – after all, Robinhood stole from the rich to give to the poor. To say the brokerage platform failed to live up to its name is an understatement.
Whether you agree or disagree with the startup’s handling of this historic moment, there’s no denying that this couldn’t have come at a worse time for Robinhood. A rage-filled army of betrayed customers is, to say the least, an unhelpful factor to be dealing with before an IPO.
Over the next few weeks, we’ll see what the lasting impacts of this PR nightmare will be for the company and its angel investors.
I do want to note, though, that not all GameStop traders were hurt by January’s events. In particular, a huge number of options traders made out like bandits – some turning small stakes into enough for a down payment on a home or a new car.
These are rare and exceptional gains – but when they hit just right, they can produce returns many times greater than just buying and holding a stock.
This can be especially true when special market conditions coalesce like they did in the case of GameStop.
But as you can imagine, it takes a pretty high level of data analysis to identify opportunities that fit the bill.
Luckily, my colleague Andrew Keene is back with a brand-new system. It’s called Super Squeeze Profits, and it promises to hand readers three potential profit-makers a week.
Click here to learn more – you’ll also get the full scoop on exactly how much money was made by some of the most successful GameStop traders. Once you check it out, you might not be able to resist going down this rabbit hole.
Be back soon!
Until next time,
Neil Patel
Follow @angelsandentrepreneurs
