5 ms·

Are you going to short it?

by FreedomToCreate 8y ago

xiphias2 8y ago
Shorting is always dangerous. Put options are safer as they don't have unlimited downside.
- latencyloser 8y ago
  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.
  - smallgovt 8y ago
    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?
    - shereadsthenews 8y ago
      If you intend to actually delve into options trading you should seriously consider Interactive Brokers.
      - smallgovt 8y ago
        Thanks, is there an advantage to IB other than lower rates and an API?
        shereadsthenews 8y ago
        No? It's a lot better than calling a broker.
    - nickles 8y ago
      > 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.
    - maxxxxx 8y ago
      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.
    - latencyloser 8y ago
      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.
- navigatesol 8y ago
  >unlimited downside Is the stock going to infinity before you can repurchase it really a concern?
  - xiphias2 8y ago
    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.
- empath75 8y ago
  Shorting is nuts because it could pop a crazy amount of money. Also it’s close to impossible to short an ipo.
DesiLurker 8y ago
Dont, shorting is a losing battle against inflation. plus you have unlimited downside.
- oh_sigh 8y ago
  You can structure your shorts to have limited downside
pbreit 8y ago
I hope shorts lose all their money. All of it. Fortunately, I think Lyft will maintain or rise so you will be losing money. Lyft is a good company in a difficult business. No one here should have any interest, financial or otherwise, in good companies deteriorating.
- icelancer 8y ago
  > No one here should have any interest, financial or otherwise, in good companies deteriorating. That's a very Elon-esque understanding of what short pressure does.
  - pbreit 8y ago
    So what does short pressure do and how does that relate to the sentence you quoted?
- warp_factor 8y ago
  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.
  - pbreit 8y ago
    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.

Are you going to short it?

xiphias2 8y ago

Shorting is always dangerous. Put options are safer as they don't have unlimited downside.

latencyloser 8y ago
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.
- smallgovt 8y ago
  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?
  - shereadsthenews 8y ago
    If you intend to actually delve into options trading you should seriously consider Interactive Brokers.
    - smallgovt 8y ago
      Thanks, is there an advantage to IB other than lower rates and an API?
      - shereadsthenews 8y ago
        No? It's a lot better than calling a broker.
  - nickles 8y ago
    > 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.
  - maxxxxx 8y ago
    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.
  - latencyloser 8y ago
    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.
navigatesol 8y ago
>unlimited downside Is the stock going to infinity before you can repurchase it really a concern?
- xiphias2 8y ago
  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.
empath75 8y ago
Shorting is nuts because it could pop a crazy amount of money. Also it’s close to impossible to short an ipo.

DesiLurker 8y ago

Dont, shorting is a losing battle against inflation. plus you have unlimited downside.

oh_sigh 8y ago
You can structure your shorts to have limited downside

pbreit 8y ago

I hope shorts lose all their money. All of it. Fortunately, I think Lyft will maintain or rise so you will be losing money. Lyft is a good company in a difficult business. No one here should have any interest, financial or otherwise, in good companies deteriorating.

icelancer 8y ago
> No one here should have any interest, financial or otherwise, in good companies deteriorating. That's a very Elon-esque understanding of what short pressure does.
- pbreit 8y ago
  So what does short pressure do and how does that relate to the sentence you quoted?
warp_factor 8y ago
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.
- pbreit 8y ago
  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.