They’re a notorious and merry band of marauders. But when it comes to Robinhood Markets (NASDAQ:HOOD) and buying into how those exploits are made possible, is HOOD stock out to rob your trading account? Let’s look at what’s happening in HOOD stock both off and on the price chart, then offer a risk-adjusted determination aligned with those findings.
GameStop (NYSE:GME). AMC (NYSE:AMC). Newegg (NASDAQ:NEGG). Blackberry (NYSE:BB). The short-squeeze play, and other malleable fast-money trading strategies have become a popularized trade in 2021 with GME, AMC, NEGG, BB and others headlining the banana-like activity.
And nowhere has the aggressive buying and selling been welcomed more than next-gen online brokerage Robinhood.
The broker is home to an ever-growing Reddit ape population that’s famously dusted off a day trading handbook from the dot-com era and made it their own through social media with fun gifs, hashtags, threads longer than War & Peace and memes galore this year.
HOOD Stock Adds to Impact
Today though, Robinhood is making another impact on Wall Street. Apes and investors alike are now free to buy a piece of the broker’s action vis-à-vis HOOD stock.
Shares debuted on the NYSE July 29. But understand this. HOOD isn’t for the faint of heart or those that worry too much about Robinhood’s financials.
For one and priced at a substantial large-cap valuation of $46 billion, Robinhood is certain to put more than a few investors off, right? For comparison and after nearly doubling in price over the past year, even Ford Motors (NYSE:F) fetches just north of $50 billion. So, yeah it probably does.
And that’s not the worst of it.
Robinhood shares sport a very hefty sales multiple in excess of 24 times HOOD’s stock price. Yikes! And earnings? Fuhgeddaboudit. Who needs ’em, right?
Actually, you can count InvestorPlace’s Mark Hake among those that are concerned. I’m not done being the bearer of bad news either.
More Bad News?
HOOD is also egregiously priced compared to established brokers Charles Schwab (NYSE:SCHW), Interactive Brokers (NASDAQ:IBKR) or Ally Financial (NYSE:ALLY) which offer profitability, sales multiples at a fraction of HOOD and other line items of importance to many investors.
So run, don’t walk away from HOOD stock, right? Maybe not. That’s not to say I’d recommend a purchase to the orphans and widows crowd either.
Given the caliber of speculative trading which has promoted Robinhood’s own growth, isn’t the riskier valuation befitting? It’s OK to disagree on that point.
Promisingly though, Robinhood’s strategies have caught the attention of savvy Cathie Wood and her Ark Invest funds known for their aggressive, go-go growth active management philosophy.
And the funds have purchased boatloads of Robinhood since the IPO’s debut, estimated at more than $300 million inside its portfolios.
Could HOOD be the next big thing for Ark Invest’s portfolios and heir apparent to the firm’s massive wins in Tesla (NASDAQ:TSLA), Square (NYSE:SQ), Grayscale Bitcoin Trust (OTCMKTS:GBTC) and other risk assets?
If HOOD stock has one other factor working in favor of future success, like many of Ark’s other favored winners, Robinhood has its share of critics based on valuation and bearish moaning over payment for order flow to generate revenue and the likes.
HOOD Stock 60-Minute Price Chart
Source: Charts by TradingView
If I had the kahunas of Cathie Wood, maybe then I’d look HOOD as a longer-term investment. And so far Ark’s commitment has paid off handsomely on paper with shares of Robinhood skyrocketing in part because of the fund’s buying.
Today though, and with little in the way of price history, I’ll take my cue from day traders of past and present and use the 60-minute chart as a guide for buy decisions.
Technically, shares are currently forming a very narrow lateral trend inside an engulfing candlestick formed during Tuesday’s opening hour of trade. The pattern is also finding favorable support above HOOD’s 62% retracement level following a single breach of the Fibonacci support last week.
All told, the price action on this day-to-swing trading perspective is interesting, but some type of buy confirmation is still needed. And that could happen quickly.
The observation is a rally through $55 and the high of the tight lateral range accompanied by a bullish stochastics crossover makes for an interesting lower risk, higher reward purchase opportunity.
It’s the sort of strategy where a couple bucks of risk could yield three to four times the initial exposure in an hour or two, to perhaps as long as a several session holding period.
Bottom line and given HOOD’s short, but contentious price history, if this sort of trade sounds like your cup of tea, I’d also suggest a modestly out-of-the-money Weeklys vertical to further control risk and leverage the handiwork of other investors.
If shares meet our outlined conditions, one favored play of this type is a long ’27 August $57/$65 call spread.
On the date of publication, Chris Tyler holds (either directly or indirectly) positions Ark Invest Innovation Fund (ARKK), Ark Invest Genomic Revolution ETF (ARKG), Ford Motors (F) and Grayscale Bitcoin Trust (GBTC). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.