Except that it inverted long after these companies had decided on their IPO timeline. I am sure everyone will be here with "I told you so" takes if the market does go down. But if it doesn't no one will remember these predictions.
This Matt Levine snippet was relevant yesterday, it's more relevant today, it's probably going to be relevant every day.
>On the other hand, if you bet that stocks will go down, you have some compensating psychic rewards. For one thing, occasionally stocks will go down, and you will be praised for your prescience in predicting the crash, and the people who were long will be mocked for their complacency. How smart you will feel!
>For another thing, even if stocks haven’t gone down, you get to borrow psychically, as it were, against that future moment of glory. You can just go around sort of saying “this is unsustainable and eventually stocks will go down and I will be praised for my prescience,” and people will be surprisingly willing to say “yes that’s correct, I admire your hypothetical prescience.” Particularly since the 2008 financial crisis, financial markets—and financial media—have a strongly entrenched narrative of prescient bears and complacent bulls, a widespread sense that any rising market is suspect and that the cynical view is always the smart one.
Once again, its strikes me as odd that so many people clamor to call the top so frequently.
I think it has more to do with companies wanting to IPO when market conditions are healthy...as in good economy and investors willing to overpay for shares :)
I think you are wrong. Snap has been excluded from FTSE[0] indices, as well as from the S&P 500, based on the fact that they have a dual class voting structure. It will probably happen the same to Lyft.
Just to add, a mildly more conservative/higher probability short would be a short call spread, can adjust the strikes depending on your risk tolerance/confidence. This limits upside but you no longer need to outpace theta, it's working in your favor on the sell side.
The long put is more sensitive to timing whereas the short call spread limits upside returns. Trade-off depending on your goals.
Edit: not to be confused with a short call, which has unlimited downside risk.
If one were to pursue this strategy, what's the quickest way to execute it? I called into my brokerage to ask, and they said it will probably be a week from tomorrow. Is there some lag after IPO's before the options market is established?
> Is there some lag after IPO's before the options market is established?
The shortest dated, exchange traded options are weeklies. These expire on Fridays.
I'd imagine you won't see volume there until at least Tuesday, though. In order to buy puts, someone needs to write them. Any reasonable seller will be delta hedging their position by shorting the underlying shares. Since equities settle T+2, it won't be easy to short the shares until Tuesday.
I'm uncertain when the contracts will begin to be listed, but I believe the minimum is 5 days after IPO.
Personally, there's quite a few unknowns that would deter me from entering this trade off the bat, as I don't usually trade IPOs. I don't really know what the short pressure on such a stock would be immediately after IPO. Ideally, I'd want an expiry less than 30-45 days away since I'm selling but, I'm uncertain that's enough time for this trade following IPO. I might execute it after seeing what happens at IPO for a few weeks or so. (edit) Of course, that may be far too late.
Also, I think it would be a hot stock for people to trade against, so I expect the spread to be reasonable, but the pricing to be extremely aggressive, which means the potential upside may not be enough for me to want the trade.
Options are all about timing, sooner may not be better.
Also, first understand what you are getting into. I personally have learned the hard way that options are a good way to burn a lot of money very quickly.
If you look at it as a geometric Brownian motion (which is better model forstock prices than brownian motion), the probability of the price halving is the same as doubling.
When you're shorting, you lose twice as much when the price doubles than when it halves.
It's not infinity, but it's a huge difference, and volatility is your enemy.
Can you explain more by what you mean with it is a "good company"? It is not a good or bad company, it is a company which mission is to make money.
Shorts help keep the stock market healthy by giving opportunities to investor to invest into overevaluated stocks. And honestly Lyft seems to be a perfect candidate for this.
Probably should have been steamrolled by Uber but managed not just to survive but to thrive. One key to success is that many believe the product is better, at least in part because riders and drivers seem happier. Very fast growing and huge revenues and gross margins. Along with Uber has pioneered a very successful and desirable transportation category. Good enough to complete a good, successful IPO.
I don't see much health value in ability to short over-valuation.
