Does a Successful IPO Guarantee Profits?

DOES A SUCCESSFUL IPO
GUARANTEE PROFITS?
By www.Options-Trading-Education.com

http://www.options-trading-education.com/24158/does-a-successful-ipo-guarantee-profits/
Forbes just posted an article about
potential IPOs for 2015 and
speculates that Uber will be the
next blockbuster IPO.

They also note that many investors
are growing wary as a successful
IPO does not necessarily
guaranteed profits.

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The years-long resurgence of the
IPO market in the wake of the
financial crisis has been marked by
several trends, one of which is the
regular appearance of blockbuster
offerings.

Since 2010, each year has included
at least one deal that captured the
market’s attention whether because
of its size (Alibaba.com in 2014), its
stumbles (Facebook in 2012) or its
circumstances (General Motors GM
+1.23% in 2010).

Looking ahead to 2015, Uber is
starting to look like it could be that
blockbuster.

But, does a successful IPO
guarantee profits for investors?

When options trading starts a week
later is it generally better to buy puts
or calls after an IPO that is profitable
for the company?

Let us look at the three examples
used in the Forbes article.

Alibaba

We wrote about Alibaba stock
options after the IPO. As we said
then, our interest in

Alibaba stock options is in the longer
term.

That is where we believe there will
be problems with the stock.

As Bidness ETC notes Alibaba is in
a rebound.

A pleasant surprise for investors has
been that Alibaba has gone up from
the $93.89 opening price and a
subsequent low of $80 to $105.88.

Alibaba Group Holding Ltd
(NYSE:BABA) has done more than
just well following its initial public
offering (IPO) back in September
this year.

The stock has risen 17.85% ever
since and has become one of the
most highly traded in the market.

The company’s shares have been
trading in the range of $82.81 to
$120 apiece, and currently have a
30-day trading volume of $28.85
million.

Some analysts are suggesting
Alibaba as a good Chinese
investment as China revamps its
economy and investment laws.

If this is the case a successful IPO
for Alibaba will result in profits for
investors.

But, the underlying problem of poor
transparency and no investor voice
in operations continues to trouble
many investors.

If you do not like how Alibaba is
doing things you can sell your stock
but you have no voice in how things
are managed.

This by itself is a reason to buy puts
on the stock.

Facebook

The Facebook IPO was flop. It
opened at $43 and promptly tanked,
settling into the $19 range.

However, in the last two years
Facebook has been able to
monetize its business and now
traded at $80 a share.

Does a successful IPO guarantee
profits?

An unsuccessful one does in this
case as all of the potential value of
the stock was not sucked up in the
initial public offering.

General Motors

GM was the bankruptcy story of the
decade.

And its initial public offering came in
at just over $31 a share.

Today the stock trades for $33.50 a
share.

There has been little variation and a
low rise in stock value.

A lackluster IPO has been followed
by lackluster growth.

The major concern today with GM is
the mammoth recall of cars due to a
faulty ignition switch and related
deaths.

Motley Fool says you should think
twice before buying which means as
an options trader you might want to
purchase puts on the stock.

While General Motors (NYSE: GM )
is having arguably the worst year in
company history in terms of negative
press surrounding its tragic recall
saga

there are a few reasons to expect
that better days are ahead for the
troubled automaker.

When you boil an investment thesis
in General Motors down to the bare
minimum, you’re basically betting
that the company will improve its
profits fast enough for its stock price
to beat the market going forward.

Despite owning shares in the
company, and believing there are
indeed better days ahead

I’m growing skeptical about GM’s
ability to increase its profits fast
enough to beat the market.

The long term issue for GM is selling
enough cars in its very competitive
home market, North America.

Maybe a long straddle is best here
as it covers the risk of a loss as well
as upside potential should sales
increase.

Does a Successful IPO Guarantee Profits?

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