Author: Avi Salzman

HOOD – Expect Robinhood Stock to Stay Volatile. The Battle Is Being Fought in the Options Market.

Robinhood Markets got over its weak market debut, and in a hurry.

In its first full week of trading, the stock jumped 57%, to $55.01, well above its initial public offering price of $38. The surge came on very little news. The information that did come out was mixed: Fund manager Cathie Wood’s ARK Investments bought the stock, but some early investors also indicated they could now sell shares in the months ahead.


HOOD – What Options Trading Says About Robinhood's Big Day

Vlad Tenev, left, and Baiju Bhatt, founders of Robinhood, on Wall Street in lower Manhattan last Thursday after their company went public.

Spencer Platt/Getty Images

In the past year and a half, options trading has hit record highs as retail investors plow money into calls and puts. All-or-nothing “YOLO” options bets have become common on platforms like

Robinhood Markets,

which has opened the products to a new generation of traders.

Now, Robinhood (ticker: HOOD) itself is in the midst of an options frenzy, which may help cause the stock to be volatile for an extended period.

Just five days after its market debut, options activity around Robinhood has been spiking, and is extremely high even compared with other hot new stocks, according to Susquehanna International Group’s Christopher Jacobson.

As of about 12:20 p.m. Eastern time, about 75,000 calls and 95,000 puts had traded, he noted. Compare that with the 13,000 calls and 15,000 puts traded in

Coinbase Global

(COIN) stock on the first day that options were available for that stock earlier this year.

The highest volume in any Robinhood-related options product was for the $70 call option — an extremely bullish bet for a stock that made its debut last Thursday at $38. Traders were clearly onto something, given that shares were recently trading at $69.25, up 48% on the day.

That said, most people in the options market are wagering that the stock goes in the other direction.

Christopher Murphy, Susquehanna’s co-head of derivatives strategy, noted that the bulk of the options activity was in bearish puts. The most active of those contracts were puts that pay off if Robinhood falls to $30 or $20 by Aug. 20. It’s not yet clear whether they are retail or institutional players.

“All of it appears to be small lots, but that doesn’t necessarily mean it’s all retail,” he wrote. “Because the options are so thin and the volatility is so high, it makes sense all the trading (whether institutional or retail) would be in small lots.”

Options trading can sometimes affect the underlying stock itself. Companies that sell calls, for instance, often buy the underlying stock itself to hedge against potential losses, and thus can cause more buying pressure on a stock — even resulting in what is known as a “gamma squeeze”.

Murphy, however, doubts that’s what’s happening with Robinhood so far — largely because puts currently outweigh calls. “The option activity has an impact on stock, but I think the volume is more likely following the momentum than being the direct cause,” he wrote.

He also cautioned investors that buying puts in hot stocks can be a dangerous strategy, because options premiums get pricier as implied volatility rises. So even traders who get the direction of a stock right can end up in a weak financial position.

“Something to keep in mind if buying puts in Robinhood … we saw situations in




where stock eventually traded lower, but so did implied volatility and those two effects canceled each other out, dampening profits to long puts even when stock traded lower,” Murphy wrote.

Write to Avi Salzman at

GME – How GameStop Joining the Russell 1000 Could Hurt the Stock

Justin Sullivan/Getty Images

The Reddit army has succeeded in launching


to a new stratosphere—but it could actually hurt the stock in the short-term.

The videogame retailer officially made it into the

Russell 1000 index,

FTSE Russell announced on Saturday. The Russell 1000 tracks large-capitalization stocks—and in order to be included in the latest index reconstitution, stocks had to have market caps of at least $7.3 billion on May 7.

As one of the stocks favored by retail traders this year, GameStop (ticker: GME) met that threshold because it had an $11.2 billion market cap by the deadline, while

AMC Entertainment

(AMC) didn’t. That said, AMC has rocketed higher since May 7, multiplying by more than five times and surpassing GameStop’s market value—hitting a recent $27 billion compared to GameStop’s $15 billion.

It may seem counterintuitive, but the Russell 1000 “promotion” may actually be bad for GameStop’s stock, as Barron’s explained earlier this month. Funds that track the small-cap

Russell 2000

will have to sell GameStop shares on June 28, and funds that track the Russell 1000 will have to buy them. Three times as much money is invested in funds that track the Russell 1000, but GameStop’s overall weight in that index will be much lower than it has been in the Russell 2000. In the Russell 2000, GameStop made up about half a percentage point of the index, while it will be less than 0.1% of the Russell 1000. GameStop will look tiny next to behemoths like



Experts like Jefferies strategist
Steven DeSanctis
expect that there will be net selling in GameStop of about 5 million shares, or about half of the stock’s recent average daily volume, after the rebalancing.

Meanwhile, AMC will be the largest member of the Russell 2000 by far—more than three times as large as its nearest competitor as of last week. See the full post-rebalancing list of Russell 1000 stocks here and Russell 2000 stocks here.

Evie Liu contributed to this report.

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TSLA – Tesla 'Recall' in China to Impact Nearly 300,000 Vehicles. What to Know.



will have to “recall” nearly 300,000 vehicles made in China or imported there due to a problem with an assisted driving function, China’s State Administration for Market Regulation said late on Friday.

Tesla (ticker: TSLA) apologized on Weibo, a Chinese social media site. “We apologize for the inconvenience caused by this recall to all car owners,” the company said, according to The Wall Street Journal. “Tesla will continue to improve safety in strict accordance with national requirements.”

The notice from the Chinese regulator said that the cruise control system could be activated by accident, which could cause a collision, according to newswire service AFP. Tesla will be able to update the software for impacted customers remotely, so they will not have to return their cars, the report said. The regulator did not immediately answer a question from Barron’s on whether the issue had already led to collisions in China. 

China is a key market for Tesla, which sells about 30% of its vehicles there. Sales in China have been spotty lately, with a decline in April followed by more promising May numbers. Tesla has been making vehicles at a Shanghai plant since 2019. 

Lately, there have been complaints from some Chinese customers about Tesla’s quality and service, with a protest at the Shanghai Auto Show in April. Tesla apologized to customers in April for how it dealt with customer complaints.

The issues are part of a larger public relations problem that may be weighing on Tesla stock, which is down 5% this year after rising eight-fold in 2020. That said, the stock was on an upswing over the past week, perhaps related to optimism about end-of-quarter vehicle deliveries. Tesla has not announced the date of its second-quarter earnings report yet.

It’s not clear if the issue in China could also impact vehicles in the U.S. Tesla did not immediately respond to a request for comment on Saturday morning.

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XLE – Energy Giants Have a Potential New Gusher: Dividends

Illustration by Elias Stein


S&P 500

index’s dividend yield has fallen in the past year. But in the energy sector, dividends remain plump and may be attractive to investors weary of hunting for income. The SPDR S&P 500 Energy Sector exchange-traded fund is yielding 3.7%, well above two sectors tied for second—real estate and utilities—at 2.9%. Meanwhile, the average for the S&P 500, based on the payout over the past four quarters, is 1.3%, while the 10-year Treasury yield is about 1.45%.

Today, demand shows no sign of fading. Oil prices are rising, and most analysts expect them to stay strong; some investors are betting that oil can eclipse $100 per barrel by the end of 2022, which means companies will probably have more cash to deploy. In 2019, the SPDR ETF’s quarterly dividend averaged 8% higher than today, wrote DataTrek Research co-founder Nicholas Colas, “while West Texas Intermediate crude was actually lower than today’s levels.”

In the past few months, some companies have hiked dividends, issued special dividends, or begun policies to return more to shareholders. Shale producer

Devon Energy

has begun issuing variable dividends, in which the company pays a fixed dividend with a 1.5% yield, then adds in a variable dividend worth as much as 50% of the excess free cash flow after funding the fixed payout. Devon recently forecast a dividend yield of more than 7% for 2021.

Pioneer Natural Resources

will institute a similar policy in 2022;




are considering it.

Meanwhile, tried-and-true dividend payers look more solid.

Exxon Mobil

is not only able to cover its dividend from operating cash flow, but analysts are starting to forecast that it will also boost the payout.

Next Week

Monday 6/21

The Federal Reserve Bank of Chicago releases its National Activity index, a gauge of overall economic activity, for May. Expectations are for a 0.50 reading, higher than April’s 0.24 figure. A positive reading indicates economic growth that is above historical trends.

Tuesday 6/22

The National Association of Realtors reports existing-home sales for May. Economists forecast a seasonally adjusted annual rate of 5.7 million homes sold, about 150,000 fewer than the April data. Existing-home sales have fallen for three consecutive months, as supply hasn’t been able to keep up with demand.

Wednesday 6/23


hosts its 2021 analyst day, when the company will update its long-term financial outlook.


hosts a conference call, featuring its CEO, Emma Walmsley, to update investors on the company’s strategy for growth and shareholder value creation.

Johnson & Johnson

hosts a webcast to discuss its ESG strategy.

The Census Bureau reports new residential construction data for May. Consensus estimate is for a seasonally adjusted annual rate of 875,000 new single-family homes sold, slightly higher than April’s 863,000. Similar to existing-home sales, new-home sales have fallen from their recent peak of 993,000 in January of this year.

IHS Markit

both its Manufacturing and Services Purchasing Managers’ indexes for June. Expectations are for a 61.5 reading for the Manufacturing PMI, and a 69.8 figure for the Services PMI. Both projections are comparable to the May data as well as being near record highs for their respective indexes.

Thursday 6/24

The Bureau of Economic Analysis reports the third and final estimate of first-quarter gross-domestic-product growth. Economists forecast a seasonally adjusted annual growth rate of 6.4%.


Darden Restaurants,




hold conference calls to discuss quarterly results.

The Bank of England announces its monetary-policy decision. The central bank is widely expected to keep its key interest rate at 0.1%.

The Census Bureau releases the durable-goods report for May. The consensus call is for new orders of manufactured goods to rise 2.8% month over month to $253 billion. Excluding transportation, new orders are projected at 1%, matching the April data.

Friday 6/25




report earnings.

The BEA reports personal income and consumption for May. Income is expected to fall 3% month over month, after plummeting 13.1% in April. This reflects a dropoff in stimulus checks that first were sent out in March. Spending is seen rising 0.5%, comparable to the April data.

Write to Avi Salzman at

COIN – Coinbase Is the Best Way to Play the Bitcoin Boom

Brian Armstrong, co-founder and chief executive of Coinbase Global.

David Paul Morris/Bloomberg

Coinbase Global

issued stock at an ideal moment—the value of the cryptocurrency market has doubled in just the past two months, Bitcoin is booming, and institutional investors are scrambling to get in.

The stock made its market debut on Wednesday with a market capitalization of almost exactly $100 billion—or 80 times its latest annual revenue. That is typically a big red flag for longer-term investors.


(ticker: COIN) is the real deal, however. It’s a novel company with competitive advantages that have enabled it to increase market share despite fierce rivals.

The stock may falter in the next crypto downturn, but its current valuation does not look unreasonable. In fact, there is good reason to believe the stock could rise significantly.


belongs in an elite league of multifaceted platform companies, not traditional brokers or exchanges. If it moves beyond relying on retail-trading transaction revenue—and there’s every reason to think it will—its potential and financial results can grow as quickly as the larger cryptocurrency market.

That promise justifies a lofty multiple of future sales. MoffettNathanson analyst Lisa Ellis thinks the stock is worth $600, up from a recent $342. That is based on her belief that the shares should trade at 18 times 2023 sales, the same as


(SHOP) multiple and ahead of


(SQ) 11 times.

“If you’re looking at [


] as a cryptocurrency technology company and taking a longer-term view, it’s hard not to be bullish,” she says. “They are definitively the market leader in a very disruptive technology that by now has critical mass momentum behind it.”


If Coinbase was just a broker, or just an exchange, it might fetch a multiple between six and eight times, or somewhere between

Charles Schwab

(SCHW) and


(NDAQ). But Coinbase is already more than that.

Sure, anyone can buy Bitcoin from a brokerage like Robinhood, but in most cases they can’t use it as a token within a cryptocurrency system, earn interest off it, or move it off the platform. Coinbase has burgeoning operations in areas like staking, which allows crypto holders to lend their crypto holdings and earn interest.

And a recent acquisition of a blockchain infrastructure company called Bison Trails could put Coinbase “on a path to becoming the Microsoft Azure of blockchain,” Ellis says.

When Coinbase was founded in 2012, CEO Brian Armstrong was taking a leap into the unknown. There was no regulation or market structure in the crypto world and handling it involved legal and reputational risks. Two years later, its chief rival imploded. Mt. Gox, a Tokyo-based exchange that once handled as much as 70% of Bitcoin trading volume, suddenly lost 850,000 of its clients’ Bitcoin.

In contrast, Coinbase developed more slowly than unregulated exchanges, taking a more traditional route by raising money from venture capitalists and making sure to check off regulatory boxes as it grew. Customers sometimes gripe about the amount of time it takes to verify their documents before they can trade crypto. But the effort has paid off.

“I think the fact that Coinbase was a U.S.-based venture-backed start-up, put it on a different trajectory, which was one of being a well-lit venue, that’s well-regulated, and in constant dialogue with regulators and lawmakers,” Tom Loverro, a Coinbase investor, tells Barron’s. “This was set up to be a corporation.” Loverro is a partner at venture-capital firm IVP, which led a funding round for Coinbase in 2017.

That often-onerous regulatory process—culminating in approval from the Securities and Exchange Commission for the public listing—is now a competitive advantage that will be hard for others to surmount, says R.A. Farrokhnia, a professor at Columbia Business School who has been teaching crypto and blockchain for years. At the time, the strategy stood out because so many others “felt it was easier to ask for forgiveness than permission.”

There are several bear cases on Coinbase stock. Regulation is sure to get more strict in some areas of cryptocurrency. Regulators have already raised questions about Coinbase’s activities; the Commodity Futures Trading Commission found that the company delivered “reckless false, misleading, or inaccurate reporting” about trades between 2015 and 2018, leading to a settlement where Coinbase agreed to pay $6.5 million without admitting or denying the claims.

The most compelling bear argument may be that Coinbase is dependent on transaction fees, and financial transaction fees have a history of deflating as competition increases. Yet that is a narrow way to look at its business.

“I think the narrative of pricing pressure is mostly based on an analog to stocks, which doesn’t apply here, because it’s a different bundle of services you’re buying,” Loverro says. A similar argument was made against Square and

PayPal Holdings

(PYPL) after their debuts, and that argument now seems quaint given all the areas those companies have entered, MoffettNathanson’s Ellis notes.

Providing trading and custody services for cryptocurrencies is very different from facilitating stock-trading. The trade-off between security and liquidity is a precarious balancing act; crypto is safest when it’s in “cold storage” unconnected to the internet. But it can’t trade without the internet. Coinbase has so far walked that tightrope like an acrobat, even as other exchanges have failed.

For investors, the chief difference is that businesses focused on other financial assets are not growing with nearly the ferocity of Coinbase. The company’s estimated $1.8 billion of revenue in the first quarter of 2021 was 40% higher than its revenue in all of 2020. Its market share of global crypto assets has grown to 11.3% from 4.8% in 2018, according to BTIG.

Bitcoin will swing lower at some point. Yet Coinbase should be able to tap a number of revenue streams, thanks to its central position in the U.S. crypto-ecosystem. Look for its stock to mint digital gold.

Luisa Beltran contributed reporting.