The retail investing boom is showing signs of slowing down, and short sellers are seizing on the trend as Reddit “meme-stocks” tank.
Hedge fund Millennium International Management, with some $50bn in assets under management, is piling into a big bet against Arrival, a British electric vehicle firm that debuted on the Nasdaq on 26 March following a Spac deal.
Arrival is a meme stock and retail favourite — it’s been more popular among retail investors than Deliveroo, short selling and trading research firm Breakout Point found.
Millennium has a short position representing 0.6% of the shares of the automobile company, Breakout Point said, based on regulatory data as of 13 April. Millennium’s short bet has grown larger in the last few days — and may be valued at as much as $48.24m based on Arrival’s closing price on 15 April.
The hedge fund declined to comment.
Retail traders drove a surge in market gains in the beginning of the year. In a 1 April note, Goldman Sachs’ analysts said retail trading has been a key driver behind high levels of US cash equity volumes, with volumes hitting record highs of 15 billion shares and 41 million contracts in the first quarter of this year for US cash equities and multi listed options, respectively.
However, the analysts said the sustainability of the trend is “questionable”. Indeed, Bloomberg reported that the daily average of short-dated call options — a popular tool of bullish Reddit meme-stock traders — plunged in March from February.
“There is potential for this level of activity to start moderating with people returning to the office,” the Goldman analysts wrote.
Breakout Point noted that share prices of many of the companies targeted by a group of Reddit traders in January have plummeted from their January highs. The GameStop saga at the beginning of the year saw shares in the US retailer skyrocket, burning hedge funds who had taken out short positions on the stock.
GameStop’s shares were down by 67% compared to their highest point in January, the firm said earlier this month, with fashion retailer Express coming second with a decrease of 73% over the same period. BlackBerry’s share price sunk by 68% and AMC’s by 54%. Arrival’s stock is down about 50% this year.
And in the UK, food delivery app Deliveroo had a difficult first foray into the markets as shares fell as much as 30% on its first day of trading in London, despite the expectation that it would woo many retail traders.
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