You may have seen the recent Bloomberg article where they report:
Just in the last week, 96,000 people on the Robinhood investing app opened a position in Hertz Global
Holdings Inc. The number of users holding Whiting Petroleum Corp. grew roughly 10,000 in the last 24 hours.
Two things the companies have in common: They’ve filed for bankruptcy protection. And each saw their shares double to start the week.
Robintrack’s data show 159,000 users now hold Hertz stock in some form. That’s a record high, and up from 37,000 users a month ago. Over the last three days, the car rental firm has seen the largest surge in popularity on the platform. Right now, more users on the investing app hold bankrupt Hertz than do Netflix Inc.
Call it crazy, but don’t call it dumb. In the three sessions through Monday, Hertz shares surged 577%, just weeks after the company filed for bankruptcy. Trading volume in the stock has surged to an average of 197 million shares a day in June -- more than 60 times what was typical in 2019.
Chesapeake Energy has seen a similar turn. The oil company jumped 182% on Monday, and after markets closed, news broke that the firm was said to be preparing to file for bankruptcy. More than 20 million shares changed hands, the most turnover on record for the stock in a single day, Bloomberg data show. In recent days, Chesapeake’s popularity with users of Robinhood ballooned to 38,000 -- a gain of 9,000.
Same with Whiting Petroleum, a shale driller that went bankrupt in April. The number of users holding shares of the company rose to a record 50,000 this week. On Monday, the stock surged 152%, and more than 104 million shares traded.
I bet the High Frequency Traders are having a blast frontrunning these trades...and Robinhood is making a boatload in payment for order flow. It reminds one of the bucket shops of the 1920s. Zero commission trading is probably a watershed for the order flow business and very profitable for brokerages who can direct trades to the highest-paying exchange.
Another accelerant is fractional share trading. Robinhood started this, but now even Schwab
is doing it, advertising $5 trade totals for ANY stock, even Amazon.
And for the punters, it’s basically an online casino offering hours of fun for a few hundred bucks.
I suspect they all know they will lose to the house in the end - the companies are bankrupt after all - but knowing the house always wins has never stopped people from going to Vegas!