You are now logged out.
A Bit of Clarification
The Hot IPO Trader
Tuesday, November 22, 2005
By Louis Basenese
#13
** A Bit of Clarification
With an abbreviated trading week, there are very few IPOs coming to market. And none of them warrant our investment interest. Instead of detailing why in each case, I’d rather spend our time providing some clarification.
A few subscribers have commented about not being able to get a fill anywhere near the offering price. And this is to be expected. The IPO offering price represents the amount individuals pay that are “offered” an initial allocation from the underwriters.
Recall trying to secure IPO shares in this manner is a difficult (if not near impossible) task for individual investors. First and foremost, we’re competing against big institutions, hedge funds, venture capitalists and a firm’s wealthiest clients for shares (naturally, you know who usually wins out).
Not to mention, being “offered” an initial allocation also requires an account with one of the underwriters on a particular deal and a sizeable account balance (typically in excess of $1 million) in order to have any hopes of getting an allocation.
Even if we can overcome all these obstacles, if demand is hot for the deal, it’s likely we’ll only get a fraction of the shares requested. (Very often brokers have a fixed amount of shares to spread among thousands upon thousands of clients).
Instead of wasting our time fighting for a few scraps, we’re better served by identifying only the markets hottest IPOs and buying them in the aftermarket.
Again, if a deal prices at $12 and demand is strong, don’t expect to get a fill near $12. Once trading begins, the market determines price based on demand. A perfect example is the Chicago Board of Trade. The IPO priced at $54 and then opened trading at $96.
Despite this huge jump, we were able to lock in gains of 25%, 50% and 21% in less than two weeks as shares surged as high as $131.
One last note about placing your orders. I recommend using market orders when available. Here’s why…
Market orders take first priority when shares begin trading. That means if you put in a limit order at $20 for a particular stock, every single market order has to be filled before your limit order. And if the price rockets past your limit, you guessed it, you don’t get a fill.
For those of you that have to use limit orders (since some online brokers like Ameritrade prohibit market orders for IPOs), I encourage you to be on standby when shares begin trading so you can adjust your limit as necessary to get a fill.
In the end, although it seems like the odds are stacked against us, our success with Chicago Board of Trade is evidence enough that we, too, can profit from trading IPOs.
I’ll be in touch shortly with our next recommendation.
Wishing you and your family a Happy Thanksgiving,
Louis Basenese
P.S. – Regarding our newest recommendation, Under Armour (Nasdaq: UARM), let’s set our sell stop at $21 and let the company’s fundamentals (including a typically strong holiday season) push shares higher. Maintain your profit targets and I’ll be in touch with any important news.
Stock
Current Price
Comments
Under Armour (Nasdaq: UARM)
$26.15
Buy. Sell stop is $21.
Saifun Semiconductors (Nasdaq: SFUN)
$29.90
Buy. Sell stop is $27.50.
Hercules Offshore (Nasdaq: HERO)
$23.71
Buy. Sell stop is $18.50
Copyright – 2005 Mount Vernon Publishing. Mount Vernon Publishing does not act as an investment advisor or advocate the purchase or sale of any security or investment. Mount Vernon Publishing expressly forbids its writers from having a financial interest in any security recommended to its readers. All of our employees and agents must wait 24 hours after an Internet publication prior to following an initial recommendation. And for hard-copy-only publications, 72 hours after the publication is mailed. Investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Mount Vernon Publishing provides its members with unique opportunities to build and protect wealth, globally, under all market conditions. The executive staff, research department and editors who contribute to recommendations are proud of the reputation Mount Vernon Publishing has built since its inception in 1984. We believe the advice presented to its members in our published resources and at our meetings and seminars is the best and most useful available to global investors today. The recommendations and analysis presented to members is for the exclusive use of members. Copying or disseminating any information published by Mount Vernon Publishing, electronic or otherwise is strictly prohibited. Members should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Likewise, past performance does not assure future results. Recommendations are subject to change at any time.
Market Watch
NASDAQ
1431.50
+5.40
SP 500
756.55
+5.81
DJIA
7223.98
+53.92
As Of 1:22AM 3/14/2009
Attention Money Map Subscribers!
Money Map Report,
New China Trader
& Money Moves Alert
are now found at www.moneymappress.com