GameStop jumps as some trading restrictions lifted

Dough CEO Victor Jones joined Yahoo Finance Live to break down the decisions Robinhood and other trading apps have made to limit the trading of certain stocks.

Video Transcript

SEANA SMITH: Dough, at first, chose not to restrict access to these heavily-shorted names, like some of your competitors did.

VICTOR JONES: Right.

SEANA SMITH: I understand that there was a brief interruption on your platform yesterday because of the clearing firm temporarily went closing only. But just help us better understand, I guess, the past 24 hours from your viewpoint and the decisions that have been made.

VICTOR JONES: Yeah. Look, we have said-- and we've been trying to communicate as often as possible with our customers our position on this. We believe in free and fair markets, and we don't believe in that as a catchy marketing slogan. We believe in it as principle. And we had some difficult decisions to make, but we stood on those principles yesterday. And it is correct that we wanted-- we chose to allow trading in these underlying names.

And we feel, with our education and with our support, the fact that people can get a hold of us in under two minutes, the fact that we're doing two-hour livestreams to really clearly articulate what a short-squeeze phenomena is, what is short interest, and help people understand that if you step back from the hype for a second, let's remember what these businesses are. When's the last time you went to a movie theater? When's the last time you bought a pair of Koss headphones, and when's the last time you actually bought a physical cartridge or game and traded in new and used video games?

So I think, you know, we've been doing our part to address that through education. And I think there's been a lot of people trying to just-- to, you know, really articulate the very difficult factors in decision-making, and there are many, right? Capital structures, capital requirements, trading risks. But at the end of the day, the customers want to be heard here. And this generation, you know, shares everything.

ADAM SHAPIRO: Victor--

VICTOR JONES: They share their cars. They share their homes. And they feel like some people aren't sharing the wealth here.

ADAM SHAPIRO: So quick question for you-- help us understand. Because my eyes, I get-- it's like algebra again when I'm trying to comprehend options trading. At one point, the short squeeze comes to an end because those who borrowed have replaced the stocks. Short interest dies off as those who are, you know, entering into put contracts are not going to be so eager to go there. And the call options are going to have to expire because, at some point, you won't need to replace the shares you've borrowed. Can't you measure when that's going to hit and that is phenomena with GameStop comes to an end?

VICTOR JONES: You can. I think, really, a lot of the people are looking at their option risk. You pin risk on the board. So I think a lot of the brokerage firms are looking at that, and that probably fueled a lot of their decisions. For us, 90% of the activity in this underlying name was coming on the stock side of things. And while our activity has increased, the reality was people were more upset with not being able to trade these underlying names than actually the desire for it. And so we actually-- while the ink-- the activity-- excuse me-- was increasing, we're only talking about maybe 1,000 orders over the last couple of days.

JARED BLIKRE: Hi, Jared Blikre here. I just wanted to get your take on the margin and the leverage embedded into the system here. It used to be, in the old days, that you could open up a margin account, and you had to have $50,000. Now you can do it with practically nothing. What's your firm's take on leverage? How freely do you dole it out, and are you revisiting any of these strategies here?

VICTOR JONES: Well, here's the way that we-- again, we approach this topic, which is you can utilize options for speculation. You certainly can. You can also utilize them for risk mitigation strategies.

I mean, how many people come on this program and they talk about stretch valuations here at these particular levels? And there's a way to look at the options market and say, I could get some potential upside here. And if we do have a meaningful correction, which many people have been talking about, then my downside capital risk is much less.

That is the way that we've been talking about utilizing option strategies, and that's what sets us apart. We do not want people coming in and just, you know, really looking at the markets as a way to short-term change lifestyle. We want people treating the markets as long-term wealth creation, and that's why we've created the firm and our principles, as well as our priorities, in the ways that we have. And if you're not there with the customers, if you're not giving them support, you're not able to answer questions in a timely manner, you kind of leave them to themselves or you leave them to internet influencers, you leave them to message boards. And I think that's why it's important to have education as the guiding principle of how you're introducing new users to the markets.