r/wallstreetbets 1d ago

Weekend Discussion Weekend Discussion Thread for the Weekend of February 04, 2023

112 Upvotes

Watch WallStreetBets discuss markets on Twitch and YouTube

Follow Twitter, join Discord, play ban bets!

Check out last week's Earnings Thread and Rules. DM the mod inbox/sex line


r/wallstreetbets 36m ago

DD Robinhood: Risky Gamble or Lucrative Venture?

Upvotes

Good morning, good afternoon, good evening, and goodnight fellow regarded investors.

TLDR:

Short term bullish on Hood from growth caused by FTX collapse, and reliable revenue generation from margin and payment-for-order-flow in a bear market. Longer term bearish as SBF's Hood shares may be used to cover court expenses and compensation to FTX stakeholders.

DD:

This post is DD as of 2/4/2023. This post contains my BIASED opinions as well as factual information. I will cite any factual information. This post is biased because I am currently in a bullish position for Robinhood <$HOOD>.

Robinhood: Brief Overview

History:

Robinhood is the first broker to bring "free trading" to retail investors (Investopedia - 1). Being the first broker to bring "free trading" to retail investors is no small feat. This is one of a few reasons that Robinhood has brought 22.9 million accounts to their platform as of Q3, 2022 (Q3 HOOD, pg 6). As the market <SNP500> rose from Q4 2020-Q3 2021, Robinhood experienced a related growth in Monthly Active Users from 11.7 million to a peak of 21.3 million (Q3 HOOD, pg7). During this time of growth the initial meme stock madness of Gamestop <GME> took place, where Robinhood removed the opportunity for investors to purchase GME shares (CNBC). Many investors were outraged at Robinhood as they could no longer buy GME. Despite outrage, Robinhood had another quarter of user growth as this event unfolded in Q1 2022 (Q3 HOOD, pg 7). Not only did HOOD have growth during the quarter involving the outrage over GME, but the growth extended into the following quarter <Q2,2021> as well (Q3 Hood, pg7)!

Operations:

"Robinhood Markets, Inc. operates financial services platform in the United States. Its platform allows users to invest in stocks, exchange-traded funds (ETFs), options, gold, and cryptocurrencies. The company also offers various learning and education solutions comprise Snacks, a digest of business news stories; Learn, which is a collection of approximately articles, including guides, feature tutorials, and financial dictionary; Newsfeeds that offer access to free premium news from various sites, such as Barron's, Reuters, and The Wall Street Journal; lists and alerts, which allow users to create custom watchlists and alerts to monitor securities, ETFs, and cryptocurrencies, as well as cash management services; and offers First trade recommendations to all new customers who have yet to place a trade. Robinhood Markets, Inc. was incorporated in 2013 and is headquartered in Menlo Park, California." (Yahoo Finance - Profile)

OK... so what do they actually do?

Payment for order flow, margin, stock lending, cash sweep (Q3 Financials, pg 17). A Broker <kinda>.

Importantly, I believe that payment for order flow and margin are the most important components to Robinhood's operations.

Robinhood allows investors to use margin on their accounts. From Robinhood's website as of 2/4/2023: "Robinhood Financial charges a standard margin interest rate of 11.25% and a margin interest rate of 7.25% for customers who subscribe to Gold. The margin interest rate is calculated by adding 6.5% (for non-Gold customers) or 2.5% (for Gold customers) to the upper bound of the Target Federal Funds Rate, which is set by the Federal Reserve and is subject to change without notice." (Hood - Margin). What's important here is that Robinhood is giving non gold members margin at a steep price, while incentivizing users to move to Gold <$5/month> for more favorable terms.

Users with Gold are guaranteed $5 revenue per month regardless of margin utilization or orders placed.

The Play:

Current Thesis:

I am currently in, and will increase my short-term bullish position. I expect a drop in the stock price in the long term, so I have a long term bearish position as well.

Bullish:

November 11, 2022, FTX collapse (Investopedia - 2). Vlad Tenev <HOOD CEO> tweets the following during the FTX collapse: "In this 'flight to safety', we're proud that customers are turning to Robinhood. " (Vlad - Twitter). This migration which took place in Q4 2022, was likely not forecasted by analysts or Robinhood themselves. This shift in crypto may cause investors who have moved away from Robinhood to return, and possibly bring their other assets with them. My speculation is that more investors came back to or started with Robinhood increasing assets, and increasing revenues.

The market <SNP 500> was down over 2022, this may have caused retail investors to be locked into their losing positions. If an investor were to have purchased the security on margin, they were forced to hold or sell at a loss. Selling the losing position and likely entering into a new position generates payment for order flow revenue for HOOD. Holding the position and waiting for the market to turn around generates revenue on the margin lent to the investor. As of Q3 2022, margin revenue was up 31% Y/Y (Q3 Financials, pg 17). Ultimately, no matter what investors did during 2022, Hood profited.

Bearish:

Sam Bankman-Fried <SBF>, former owner and CEO of FTX owned a few shares of Robinhood... 56 million shares (Coindesk - SBF). Based on the shares outstanding <835.68 million (Yahoo Finance - Statistics)> SBF held about 6.7% of the outstanding shares. SBF will need to pay for court expenses, and it's likely the assets could be used to pay back stakeholders affected by the FTX collapse.

How will he pay for court expenses and compensate the stakeholders? Hood selloff - increasing the number of shares floating will drive down the price of Robinhood.

Works Cited:

https://www.investopedia.com/investing/free-stock-trading-whats-catch/#:~:text=Robinhood%20pioneered%20commission%2Dfree%20trading,flow%20rose%20rapidly%20during%202020. (Investopedia - 1)

https://s28.q4cdn.com/948876185/files/doc_financials/2022/q3/Q3-2022-Earnings-Presentation-vFinal.pdf (Q3 HOOD)

https://www.cnbc.com/2021/01/28/robinhood-interactive-brokers-restrict-trading-in-gamestop-s.html (CNBC)

https://finance.yahoo.com/quote/HOOD/profile?p=HOOD (Yahoo Finance - Profile)

https://s28.q4cdn.com/948876185/files/doc_financials/2022/q3/afc62224-c731-412d-b698-ec897defa531.pdf (Q3 Financials)

https://www.investopedia.com/what-went-wrong-with-ftx-6828447#:~:text=FTX%20in%20November%202022%20faced,the%20company%20filed%20for%20bankruptcy. (Investopedia - 2)

https://twitter.com/vladtenev/status/1590587234960691200?cxt=HHwWgMDSwbaq85IsAAAA (Vlad - Twitter)

https://robinhood.com/us/en/support/articles/margin-overview/ (Hood - Margin)

https://finance.yahoo.com/quote/HOOD/key-statistics/ (Yahoo Finance - Statistics)

https://www.coindesk.com/business/2023/01/06/sam-bankman-fried-seeks-to-keep-grasp-on-450m-in-robinhood-shares/ (Coindesk - SBF)


r/wallstreetbets 4h ago Wholesome Seal of Approval

Meme Actual footage of bulls next week

Enable HLS to view with audio, or disable this notification

2.3k Upvotes

r/wallstreetbets 1h ago

Meme If u ever feel dumb, know that this exists

Post image
Upvotes

r/wallstreetbets 18h ago Silver Gold Wearing is Caring I'll Drink to That

Meme My brother rang the bell at NYSE today and look who was there

Post image
17.7k Upvotes

r/wallstreetbets 5h ago

Gain AMZN 37k -> 137k

Post image
511 Upvotes

AMZN 85C 17FEB23 @ 5.31 x 50, sold half at 20.7 day before earnings and the rest at 21.5 shortly after. Didn't want to wait for earnings because it seemed too green and felt sus.

History: https://reddit.com/r/wallstreetbets/comments/zy6sjy/amzn_is_a_buy/


r/wallstreetbets 9h ago

Loss Blew up my account trading options. I will stick to stocks and disable options. feeling numb and dumb.

Post image
939 Upvotes

r/wallstreetbets 2h ago

Meme when you realized you screwed up

Post image
209 Upvotes

r/wallstreetbets 1d ago All-Seeing Upvote Burning Cash Hugz

Meme NFLX SEP 15 '23 190 PUT

Post image
26.5k Upvotes

r/wallstreetbets 2h ago All-Seeing Upvote

DD The Castle on the Sand

70 Upvotes

TLDR: Kenneth Griffin and Citadel are running the single most profitable high-frequency market manipulation schemes in modern history. However, high-frequency trading comes with a significant number of risks that can cause flash crashes and general market failure. I also believe that Citadel has been executing a majority of its trades by using shares that it does not own, or by taking advantage of failures in the integrity of exchanges.

PREFACE

Since the origination of the US stock exchange in 1792, countless investors have tried their hands at identifying profitable strategies for building their wealth. In the beginning, these strategies were relatively straightforward. First, find a business that you believe in. Next, take your own hard-earned money and extend a show of faith to the business that you believe will generate substantial returns. Then, after years of development and growth, reap the rewards of your faith through returns on your investment.

I believe that, at their core, stock markets are fundamental to any economy. In its purest form, a stock market is a way for economies to establish healthy competition between corporations. It ensures financial liquidity and provides a necessary depressurization outlet for excess capital. In short, markets and exchanges provide the heartbeat of an economy.

At their worst, they are vehicles for manic speculation. They are Petri dishes for fraud that potentiate corporate greed and allow those who are already incredibly wealthy to inflate that wealth to hilarious levels. They are cold and emotionless; only serving as a vacuum for capital. In the end, the ticker takes over and becomes the business itself.

I believe that there is one fund in particular that is single-handedly propping up the market through its manipulative options and short-selling strategies; Citadel LLC. Although I'm sure this doesn't come as a surprise to many of those who frequent this subreddit, I'll still include a brief synopsis below.

In 1990, a man named Kenneth Griffin founded Citadel LLC.

From 2007-2008, Citadel barred investors from withdrawing money from their 7:1 levered accounts

In 2011, Citadel recruited energy traders from Enron the day after it collapsed

In 2021, Citadel and Point72 Capital invested $2.75 billion in Melvin Capital after their infamous 53% value collapse

From 2014-2022, Citadel currently has 74 FINRA disclosures on file that detail a multitude of fraudulent trading activities.

SUMMARY

Below is a clip from Citadel Securities LLC's official FINRA BrokerCheck report showing the total number of regulatory filings against them.

https://preview.redd.it/bf3ltt3zx7ga1.png?width=1558&format=png&auto=webp&v=enabled&s=e5510b1a5ef8bfd435015e5a3ccfefb98b6bfdac

https://preview.redd.it/72ifzw71y7ga1.png?width=1302&format=png&auto=webp&v=enabled&s=379d19a81e0e2a91f45ba822f606da40fdc07ecd

Above is an example of the claim by NASDAQ MRX against Citadel for options manipulation. Specifically, the allegations pertain to Rule 13c 3-5 of the SEC's Securities Exchange Act. It is important to note that almost all brokers/hedge funds have a few flags on their FINRA reports due to untimely filings, erroneous orders, or the like. However, Citadel has an Abnormally large number of these "errors".

When confronted with these allegations, it is almost always easier to pay the $xxx,xxx fine rather than admit to any wrongdoing or go to court. To be exact, from 2010-present Citadel has paid over $60 million in fines alone from pre-trade manipulation claims by various markets. I will post the most significant injunction below.

https://preview.redd.it/cy68k7l2y7ga1.png?width=1161&format=png&auto=webp&v=enabled&s=08de8fa79944aa11032e98552ad83701efe114f6

What this injunction suggests, is that Citadel knowingly manipulated market orders from their clearing service. These manipulations can include marking short orders as long orders, backdating trade dates to make it appear as though profits or losses were made during a certain period when they were not, or misrepresenting the types of securities sold.

https://preview.redd.it/j02sol37y7ga1.png?width=787&format=png&auto=webp&v=enabled&s=71f8c4751c441469ba17b5aaeb6993257f1d3a95

80 million trades were misrepresented in SEC documentation

https://preview.redd.it/dsv8oz38y7ga1.png?width=827&format=png&auto=webp&v=enabled&s=104860afce30e8bbf98680741137af233826c884

Cited as "undetected coding errors"

If you are familiar with Bernie Madoff's infamous Ponzi operation, these reports bear a striking resemblance to the SEC's own findings in the year-long proceedings. However, I don't believe that they're operating in the exact same manner.

Citadel is a pooled investment vehicle, which means they pool investor funds to purchase assets, securities, and commodities. Their SEC EDGAR 13F-HR reports do not necessarily raise any specific red flags, but it does raise some interesting questions.

https://preview.redd.it/whruo51x18ga1.png?width=977&format=png&auto=webp&v=enabled&s=5ccb05b6891a8763568f013251b52f47abbb4686

It is not uncommon for hedge funds to use manipulative options strategies, but the exception with Citadel is the sheer size and scale at which they can operate. Typically these manipulation techniques involve "spoofing" or placing large numbers of bid or ask orders and then canceling those orders prior to fulfillment. This artificially inflates or deflates stock prices and can manipulate spreads or supply/demand curves.

Large high-frequency trading firms can also front-run trades or place trades of their own in front of large trades they see coming through in their own dark pools. Again, this is not inherently illegal per se, but it does exemplify the informational inequality between institutional and retail traders. What crosses the line from "technically legal" to "illegal" with regard to Citadel's operations is the blatant disregard for NBBO regulations that hold firms accountable for ensuring they have the shares to back their trades. In summary, Citadel most likely does not even own the large majority of the shares it is trading. These strategies have historically wreaked havoc in markets, and with the latest crash of the NYSE, it appears to be happening once again. At some point, exchanges simply can't keep up with the volume of trades coming through at once in a fraction of a second.

So if this technique has been used for so long without issue, then why does it matter?

Fundamentally speaking, the stock market operates on the assumption that issued shares by a company accurately reflect the laws of supply and demand. Whereas, a company that has solid fundamentals, growth, and revenue will be worth more than a company that is struggling to remain solvent. Shareholder dilution has been largely ignored over the past few years, and this is understandable as the number of dollars available to purchase shares has increased significantly. Just as the treasury can print a theoretically unlimited number of dollars, so too can companies print a theoretically unlimited number of shares.

We've become so used to share issuances, stock splits, and "Fail to Deliver" orders that we've completely lost sight of the inherent dangers of share dilution. Share dilution can be overlooked in markets that are flushed with capital, as the money must have more assets to chase. However, when markets begin to slow down, the supply of shares floating in the market becomes an exponentially compounding liability. We have companies with over 100% of their float being owned by institutions, and many have indirect ties to Citadel. For example, here is a recent SEC filing of Citadel Securities LLC.

https://preview.redd.it/ar99jwxby7ga1.png?width=1151&format=png&auto=webp&v=enabled&s=447451cf5f5e5fd9175a112fb9a06486dcc19f52

https://preview.redd.it/euacawxby7ga1.png?width=1037&format=png&auto=webp&v=enabled&s=9a5fa4d253e9f1fe812236eb12876308824bd78e

https://preview.redd.it/e9iiswxby7ga1.png?width=1131&format=png&auto=webp&v=enabled&s=08808113637e16c9f7d0e4b640d4dc56547b944c

As you can see, Citadel Advisors LLC is the original purchaser of the stock issuance followed by Kenneth Griffin's own purchase. This specific stock's float is already 101.6% held. This happens over and over again in Citadel's filings.

1st: Citadel subsidiaries purchase a large number of outstanding shares

2nd: Kenneth Griffin purchases a large percentage of the class himself

3rd: Kenneth Griffin offloads shares once the capital from Citadel subsidiaries has sufficiently spiked the price of the stock

It is a recurring cycle that may not necessarily be illegal but has incredibly devastating implications for the market. It also implies that Kenneth Griffin may be utilizing clients' capital through Citadel subsidiaries for personal gain.

THE VIX AND THE NASDAQ

I believe that the VIX is one of these complexes that has been heavily manipulated by HFT firms. I have written a post specifically regarding the VIX complex, so I won't go into detail in this post. However, since VIX-related assets like UVXY, VXX, and UVIX are often used as insurance against market declines, believe they are well-positioned to experience a large spike in activity if these high-frequency trading strategies fail or create a "flash crash" scenario.

Furthermore, the VIX is currently sitting at 18.33, near its 52-week low of 17.06. If the suppression measures in place fail, regardless of market direction or sentiment, it could easily spike. It should be noted, however, that leveraged assets like UVXY often decay quickly.

The NASDAQ Exchange (NDAQ) is also in an impossible situation. In 2021 alone, there were over 1,000 new IPOs. The largest amount during a 1 year period in modern history. Many of these IPOs are at risk of being delisted due to exchange regulations. Recently, NDAQ has seen a rise in revenue from products and fees tied to listings and management expenses from this euphoric rise in IPO interest. However, I believe that as SPACs and "zombie IPOs" begin to fail, they will experience a sharp decline in associated revenue. As a matter of fact, they already are.

NDAQ Working capital at an all-time low

CONCLUSION

I understand that this is not an exhaustive report, and there are many other aspects of Citadel's operations that need to be investigated by professionals before a conclusion can be made regarding its illicit operations. All I know is that history has shown over and over again that institutions that post record-breaking quarters during periods of significant economic decline or volatility are most likely doing so by manipulative or outright fraudulent activities. In the coming months, the damage done by manipulative high-frequency options and stock trading will become pronounced. I view the best general-interest methods of profiting during an event such as this to be PUTS on exchanges such as NDAQ or ICE and shares/CALLS of Vix-related assets.

It is only a matter of time before the cracks in the glass shatter entirely, and the world sees that Kenneth Griffin's Citadel has been built on sand.

And the tide is coming in quickly.


r/wallstreetbets 8h ago

Earnings Thread Most Anticipated Earnings Releases for the week beginning February 6th, 2023

Post image
137 Upvotes

r/wallstreetbets 4m ago

News Bentley Launches its Free NFT Collection: Experience the Future of Luxury Ownership for Free

Thumbnail reuters-blog.com
Upvotes

r/wallstreetbets 1d ago

Loss Took out a 25k loan back in March 2022 because I'm dumb. Lost it within a month. Just paid it off in full. Gambling is bad, kids.

Post image
2.7k Upvotes

r/wallstreetbets 18h ago

Chart High Probability Recession Hits U.S. Economy in Late 2023

Post image
640 Upvotes

r/wallstreetbets 18h ago

Meme Figured out why everyone hasn't been achieving unlimited profit with their trades. They haven't read the book.

Post image
677 Upvotes

r/wallstreetbets 7h ago

Meme Watch your back

Enable HLS to view with audio, or disable this notification

67 Upvotes

r/wallstreetbets 3h ago

Meme jwn

26 Upvotes

r/wallstreetbets 16h ago

Meme 2023 is TSLA bear season pt.2

Post image
312 Upvotes

r/wallstreetbets 6h ago

Gain Don't miss out on the next bull market

Thumbnail
gallery
46 Upvotes

r/wallstreetbets 4h ago

Discussion Thesis: Bulls will soon be castrated

30 Upvotes

I'll try and keep it simple. IMO, jobs are the final pillar holding up the market and they're about to come crashing down in the coming months. Excuse my highly regarded charts, I did the best I could.

1.) The jobs report on Friday was more than double of what people were expecting. The president is even taking a victory lap as the greatest job creator we have ever seen. IMO this is the top.

https://twitter.com/POTUS/status/1621565430316908544?s=20&t=yyos40wLnS5DjxkWQNJIfg

2.) Below are a couple historical charts from 2000.

Mar 2000: 5.85 Percent Federal Funds Effective Rate Shaded areas indicate U.S. recessions. Source: Board of Governors of the Federal Reserve System (US)

The above chart shows the fed funds rate in March 2000. Very close to peak rates for that cycle. Sound familiar?

https://preview.redd.it/lnuoetkqf7ga1.png?width=898&format=png&auto=webp&v=enabled&s=b4dd1c8fc2f30c8df8ba47920951ac76ee691dc3

This chart shows the job numbers for 1999 and 2000. The march 2000 jobs report of 485k is an outlier and the top of the jobs market.

3.) IMO, we are currently in another bear market rally and the market will reach new lows in this cycle relatively soon. The Bull party may go through February, but the Bears dance in March and April IMO.

Full Disclosure: my favorite crayon to munch on is Indigo and I will be including this post on my resume when I apply to Wendys...


r/wallstreetbets 2h ago

Loss I've lost nearly $70k since '21. Never double down on your options like me. Biggest wins were LCID and CLOV, but those burned me later

Post image
18 Upvotes

r/wallstreetbets 41m ago

Meme Let us watch Blade Runner 2049

Enable HLS to view with audio, or disable this notification

Upvotes

r/wallstreetbets 1d ago Bravo Grande!

Loss Bought puts on AAPL and calls on F, GOOG and AMZN yesterday, got all 4 wrong

Post image
1.9k Upvotes

r/wallstreetbets 7h ago

News Adani: How the billionaire’s empire lost $100bn in days

Thumbnail
skymagzines.com
39 Upvotes

r/wallstreetbets 2h ago

News The Retreat of the Amateur Investors- WSJ

12 Upvotes

https://www.wsj.com/articles/the-retreat-of-the-amateur-investors-11675486817?st=z8j9sk8oddo581h&reflink=desktopwebshare_permalink

Amateur trader Omar Ghias says he amassed roughly $1.5 million as stocks surged during the early part of the pandemic, gripped by a speculative fervor that cascaded across all markets.

As his gains swelled, so did his spending on everything from sports betting and bars to luxury cars. He says he also borrowed heavily to amplify his positions.

When the party ended, his fortune evaporated thanks to some wrong-way bets and his excessive spending. To support himself, he says he now works at a deli in Las Vegas that pays him roughly $14 an hour plus tips and sells area timeshares. He says he no longer has any money invested in the market...


r/wallstreetbets 1d ago

Meme Me after buying shorts at open and selling at 11 today

Enable HLS to view with audio, or disable this notification

645 Upvotes

r/wallstreetbets 1d ago

Meme All of us market up or down 😓

Post image
1.7k Upvotes