Last week HOOD sold 55 million shares in a failed IPO, “failed” meaning the stock ended the day below the $38 offering price.
Wednesday, trading in HOOD stock options began. The stock came close to doubling, closing at $70.39, as meme players piled in.
Yesterday, private market holders of HOOD who had not participating in the Monday offering declared their intention to sell close to100 million shares. HOOD fell by 28% on this news, closing at $50.97. Volume was 82 million shares, which is only a small number when compared with the prior day’s 176 million. Given that the float is 55 million, every share changed hands more than three times on Wednesday.
HOOD is up by 11% in pre-market trading as I’m writing this.
What I find most interesting about this is the decisions of the institutions who announced yesterday. They were not interested in selling at $38. Whether that’s because they thought the price was too low or they didn’t want to depress the offering price–and therefore lessen the cash HOOD would receive to help expand/improve the company–isn’t clear.
It could also be they were anticipating what happened once options trading began and were waiting for the stock spike to sell. One argument that they were is that once the meme traders began to work their price magic they showed no hesitation in heading for the door.
Again, it’s unclear whether these institutions, who arguably know HOOD better than anyone else, are selling with the intention of buying back at lower prices once the meme-ers have run out of steam or are making a permanent exit. At the very least, however, they have already staked out territory market “too high” for savvy fundamentals-based investors. It will be interesting to see how much this means to meme-ers (my guess is not much).
I’ve got no interest in owning HOOD. But I think this situation will likely serve as a template for future HOOD-like IPOs. So it’s worth paying attention to learn how future such IPOs will play out. My suspicion is that this will become the norm so long as interest rates remain near zero.