Robinhood becomes the latest meme stock

There was more meme stock madness last week, with shares in zero-commission broker Robinhood going ballistic just days after a disappointing initial public offering (IPO). Low demand saw Robinhood's IPO priced at the bottom of its expected range and the shares went on to lose 8 per cent on its first day of trading – the worst-ever market debut for an IPO of its size, according to Bloomberg.

Within days, however, everyone was clamouring to buy, with the stock spiking 125 per cent in a two-day period last week. Why? Some cited the opening of options trading, although if that was the case shouldn't Robinhood have enjoyed an anticipatory price pop on IPO day? Others referred to cult fund manager Cathie Wood buying stock, but this ignores the fact that shares actually dropped after Wood's initial purchases were reported. It's better, really, to admit you can't make sense out of nonsensical price moves.

MAI Capital Management's Chris Grisanti was open in this regard, telling Bloomberg: "Looking at the chart and scratching our heads and saying 'I don't know' is the same feeling we had with GameStop and AMC. " Bloomberg's Matt Levine came up with his own novel explanation: meme stock investors love bad news. GameStop and AMC became meme stocks because they were hit hard by the pandemic, Hertz became a favourite because it went bankrupt. In the same way, Reddit's retail investors leapt to Robinhood 's defence after its IPO flop.

As Levine puts it, “the way to become a meme stock is to be bad, then good”. OK, it doesn’t make much sense, but that’s the thing with meme stock price moves – they don’t make sense.