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Suppose one expects that IPOs, on the whole, show poor performance following the IPO (especially if one buys at the IPO), and wishes to bet against them.

This can be done by simply shorting every IPO (assuming someone can be found who will lend the shares), and then covering after 6 months, or for instance setting a limit at -10% and a stop at +20%. But between the borrowing fees and commissions, this does not seem practical for a small trader.

One could also buy puts, or some sort of bearish combination. However for a new stock the liquidity will be poor (for instance PTHN was a month ago and still has only a few dozen open interest). Options are also an advanced instrument so again not very practical.

If one's outlook is that IPOs generally tend to decline after the IPO, is there an easy way to profit from this thesis?

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    Do you have data to support your claim in your first sentence? There are a lot of IPOs every year.
    – quid
    Commented Aug 16, 2016 at 21:33
  • @quid Especially so during market tops ;-). The poor performance of IPOs is the premise of my question; whether it's actually true seems like an extended discussion that would be out of my question's scope.
    – Superbest
    Commented Aug 16, 2016 at 21:41
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    Sure, but if we're in a market top then you don't need to hamstring yourself to IPOs because the entire market is at the top. You say it's "common knowledge" that IPS's lose money, and I'm just not sure if the fist full of examples you've found will constitute "common knowledge." I'd address the assertion that IPOs generally lose money before blanket shorting IPOs.
    – quid
    Commented Aug 16, 2016 at 21:46
  • @quid But my premise is not that we're in a market top. Also, I didn't say it is common knowledge, I said that it is a sentiment held by many people. Anyway, I'll remove that statement so it doesn't distract from the main point.
    – Superbest
    Commented Aug 16, 2016 at 21:50
  • I think this is a very interesting question. The only general answer I could come up with though is become a venture capitalist. If you think about it, in general, they're the ones selling their stakes (going short) at the time of the IPO.
    – hroptatyr
    Commented Aug 17, 2016 at 9:51

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There are 2 primary ways to bet against a stock if you think it will decline. The first is to short sell shares of that stock the second is to buy put options (I would also add that selling naked call options would also be a bet against but I don't believe that is as common as the other 2 mentioned methods).

The problem with short selling an IPO is that you first have to borrow the shares you are going to sell. Since the shares are privately held prior to the IPO that can be problematic. Even after the IPO you may have to wait a bit before shares become available to borrow.

The problem with options (either buying puts or seeking naked calls) is similar. Options are traded on a different exchange than the stock and they have their own requirements that a stock must meet to have options traded.

Both of these problems eventually correct themselves however, not in time for you to catch the initial fall you seem to be looking for.

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  • I think this is correct; the only actionable method to attempt what the OP wants would likely be indirect. Perhaps something like shorting the stock of a public equity firm which has/will have a stake in the IPO-ing company?
    – Grade 'Eh' Bacon
    Commented Aug 17, 2016 at 18:36
  • @Grade'Eh'Bacon true, but then you are betting against that firms entire portfolio. I'm not sure what the OP wants to do is possible in any sort of short time frame.
    – homer150mw
    Commented Aug 17, 2016 at 22:23

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