None of what you just said has any basis in reality. If you really did know all of that, you would have spent every penny you have a) buying the stock at IPO and b) selling it tomorrow and then immediately shorting it and waiting.
So then you'd have to get a retail or institutional investor who JUST PURCHASED shares to lend them to you to short.
In which case, why would they bother buying them in the first place.
If the short to long ratio gets too close, they will close out shorts or try to borrow from other clearing firms so that they don't end up naked. Early on, most firms will just close the short.
I don't think what you said is 100% true either. Charles Schwab brokerage definitely asks before lending out, advertises the interest the borrower is willing to pay on the loaned shares, enrolls the willing lender into Schwab Securities Lending Fully Paid Program, and then buys an insurance policy from Lloyd to cover counter-party default. All of this is done via FedEx letters and hand-written signatures.
Sounds like some brokerages don't ask and keep the fees and accrued interest to themselves, which is shady. ETFs and mutual funds don't have to ask anybody, of course, and usually pass on revenue from securities lending to their customers via lower fees.
Cash accounts are different creatures.
How could parent have done this? Can non-super-rich individuals typically participate in IPOs? If not, then the only option is to buy at the market price at open, i.e. after any said 'pop'.
(I'm not commenting on whether access to IPOs is a sure-fire way to make money.)
The answer is that you cannot do this because it is NOT TYPICAL. Plenty of tech IPOs flop but cognitive bias means you only remember the googles and apples and squares and not the 50% that go south of ipo price straight after launch.
The SEC filings from every company before their IPO contains more than enough data to evaluate their standings as a business, and are publicly viewable. There's a reason people know things, it's not all magic.
Also, unless a stock has crazy liquidity, instruments like shorts and options are generally not available to individuals for a while after an IPO. A hedge fund may be willing to issue them, but they're set up for low volume/high value trading so they only deal with other large institutional funds. Your average bank that would back options or shorts for an individual isn't willing to take on that kind of risk for a recently-IPOed stock.
> Also, unless a stock has crazy liquidity, instruments like shorts and options are generally not available to individuals for a while after an IPO. A hedge fund may be willing to issue them, but they're set up for low volume/high value trading so they only deal with other large institutional funds.
How can a hedge fund issue options until options are legally able to trade? Short answer, they can't.
> Your average bank that would back options or shorts for an individual isn't willing to take on that kind of risk for a recently-IPOed stock.
Banks dont' "back" options, what ever that is supposed to mean. They are created when someone writes one, This is almost predominately, market makers and buy side funds, though the sell side will write some options.
And the bank takes on almost zero risk when they lend securities to short sellers. The sellers post collateral at the end of each day that is usually around 100% of the current short. What risk do you think banks are taking on when lending?
> I would expect to see Square drop precipitously over the next week/month as the professional investors can make money by pushing the valuation down, then it'll stabilize somewhere near the IPO price in 6-12 months.
Based on what? probably not history as I just went through all the IPO's over the past 3 years, guess how many are trading within 5% of their IPO price? About 5% of them
> Company fundamentals have very little to do with share price in the first year or two of an IPO; it's almost entirely psychological.
Again, based on what? I don't think you get to state this without some basic research. Why after 2 years do people start looking at fundamentals?
Couldn't a hedge fund call up their bank of choice and ask them to write a custom OTC option? Assuming of course the bank wants to take the other side of the trade. Or does the law prohibit any sort of derivatives created by anyone?