Shares of Redbox (NASDAQ:RDBX) stock are down 11% so far today on news that exchanges are limiting investors’ ability to trade the stock.
Yesterday, Robinhood (NASDAQ:HOOD) announced that major exchanges were making it so investors could only close options positions related to Redbox. TD Ameritrade also said its customers can “sell only” their options on RDBX stock. These limits come as shares trade erratically and online chatter grows about retail investors targeting the company for a short squeeze.
Let’s get into the details.
What’s Happening with RDBX Stock?
Redbox, which rents movies and video games at kiosks placed in grocery stores and other retail outlets, is in the process of being acquired by Chicken Soup for the Soul Entertainment (NASDAQ:CSSE). Chicken Soup has said it will acquire Redbox in an all-stock deal valued at $375 million. Ever since the acquisition announcement in May, though, RDBX stock has risen and fallen sharply, leading to worries about a squeeze.
From May 13 to June 13, RDBX stock rose 470% to a peak close of $15.27. Shares fell 34% to $10.09 on June 14, however. Redbox currently trades around the $10 mark.
According to some analysts, these movements don’t make much sense, given that Redbox will soon cease trading after the acquisition. But there are also reports that RDBX stock remains sold short by more than 200%. That means professional traders are betting the share price will decline, making Redbox ripe for a short squeeze.
Why It Matters
This is not the first time that RDBX stock has been targeted for a short squeeze. Redbox went public via a reverse merger with a special purpose acquisition company (SPAC) last fall, just before the stock market peaked.
Initially, shares vaulted as high as $27.22 in October as retail investors treated the company like a meme stock. Soon, though, RDBX stock quickly crashed back to earth.
In April 2022, the stock climbed again. Shares jumped 347% — from $1.91 per share on April 11 to $8.53 on May 2 — before crumbling once more.
When it comes down to it, exchanges are limiting the ways investors can interact with RDBX stock. This is then limiting what brokerages can offer to their customers. While limiting options also limits frantic trading and volatile price swings, there are other reasons for the decision. For instance, CBOE has a requirement that stocks have 7 million shares in their free float in order for options to trade.
What’s Next for Redbox?
Investors continue to treat Redbox as a meme stock, unwilling to let shares go even as the company becomes acquired. This has led RDBX stock to become extremely volatile.
Really, though, buying Redbox today doesn’t make much sense in the first place. With the acquisition on the horizon, the stock and ticker will soon no longer exist. Investors should be wary of taking a position in Redbox at this time.
On the date of publication, Joel Baglole did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.