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#Could Wall Street and Main Street join to short Robinhood post-IPO?

#Could Wall Street and Main Street join to short Robinhood post-IPO?

Could Robinhood’s hotly anticipated IPO make it a short-selling target of both the hedge funds and the “Reddit Rally” retail crowd normally bent on destroying Wall Street?

The word on the Street — and among some users of Reddit’s popular WallStreetBets chatroom — is yes.

“Brokers are preparing for a lot of short sale demand,” Ihor Dusaniwsky, managing director at S3 Partners, a financial data firm that tracks short interest in publicly traded stocks, told The Post. “There’s a lot of talk about retail and institutional investors – like hedge funds – shorting the stock.”

If that happens, it would certainly make for an odd coupling. Reddit’s merry band of investors have made it their mission, in some cases, to destroy hedge fund short sellers by driving up stocks Wall Street has bet would decline, like GameStop and AMC.

People wearing face masks walk by the New York Stock Exchange (NYSE)
“Brokers are preparing for a lot of short sale demand,” Ihor Dusaniwsky of S3 Partners told The Post.
Andrew Kelly/REUTERS

Certainly, users of Reddit’s WallStreetBets chatroom have been talking about the prospect of shorting the Robinhood app as revenge for the trading app having halted purchases of “Reddit Rally” favorites like GameStop earlier this year.

“Based on what we have learned over the past year as a result of the Robinhood inability to effectively manage it’s capitalization to remain solvent during periods of volatility and volume, I believe the Robinhood IPO provides a fantastic short opportunity,” one user recently wrote.

He cited, among other concerns, his “distrust” of Robinhood CEO Vlad Tenev before signing off with this caveat: “This is of course based on my personal opinion, is not investment advice.” 

It’s not just retail investors who have been exploring the idea of shorting the popular retail trading app. Major institutions are also considering the possibility of shorting Robinhood, sources tell The Post.

And that, of course, has some Redditors warning each other NOT to short Robinhood, warning that its a complicated process with unlimited financial risk — and potentially a “trap” by Wall Street.

Vlad Tenev, co-founder and co-CEO of investing app Robinhood, speaks during the TechCrunch Disrupt event in Brooklyn.
One user of Reddit’s WallStreetBets forum cited his “distrust” of Robinhood’s CEO Vlad Tenev when explaining his short thesis.
Brendan McDermid/REUTERS

“You short Robinhood, you’re the one getting your ass squeezed,” one user wrote.  

If Robinhood becomes a short target, it would likely happen after the stock debut.

“Brokers have a limited capacity to approve short sales on IPO day but shorting can ramp up following the IPO,” Dusaniwsky said. “Because it will have a high percent of retail holdings there will be less short selling approved on the first day,” he added of Robinhood’s plans to reserve between 20 percent and 35 percent of its shares for retail traders.

The move that makes their inaugural day of trading riskier since they won’t have institutions promising to buy every last share — and could actually make the stock harder to short.

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