4 ms·

IPOs experiencing significant drops after their IPO is not a crazy theory, it's pretty much the norm: https://potomacwealthmanagementllc.com/2026/03/04/underper

• fadesibert 2mo ago
  Your instinct is correct. Options markets are wide following an IPO (ie there is a significant difference between the price at which a dealer will sell a specific option at a specific strike for a specific time). That tends to settle down ~60 days after trading, with seasonsed order flow, a realized volatility pattern, Observed volumes, open interest, liquidity in the stock (eg hedging becomes cheaper) and naturally - competition between market makers. Wide spreads are profitable for options dealers (and you need that profit to absorb losses where risk is misjudged or the stock is unpredictable) - but if two dealers are making excess profits offering wide markets in an option, a 3rd will join and undercut them. Source - I was a quant at a large investment bank, with ~5 years facing the Equity markets / 13 years across many desks and teams. Here's a chart of the last 20 IPOs with their Relative Spread (Bid + Offer / Midpoint) on each successive day of trading to show the tightening of spreads over time. https://drive.google.com/file/d/1-bLekd5OonnrlEZyjRPNQYZmvnGZXigt/view https://drive.google.com/file/d/1-bLekd5OonnrlEZyjRPNQYZmvnG...
  • jerf 2mo ago
    Oh wow, thank you for that chart. That is fantastic. The premium is huge. And for good reasons.