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Comment by bpodgursky | Hacker News Reader

If you're confident, short it. Make some money.

Somebody once told me the world is gonna roll me. They also said the market can stay irrational longer than you can stay solvent.

In reality when debt/funding is exceptionally cheap, conditions exist for these sort of companies to be fine. Or to put it another way, when there's few options to park money and expect a reasonable return, risk threshold for unprofitable companies becomes lower.

So the market isn't really irrational. You might argue our interest rates and monetary policies are irrational. I would agree with you.

All asset valuations have a numerator and a denominator. I think people sometimes forget that - if dollars are cheap, stocks with 100x multiples aren't that expensive. There is an inflation assumption baked into that price, but it seems to be coming true.

Ah yes, the album version of 'All Star' was so much better than the radio edit.

take out small medium-term, out of the money puts. Be ready to lose it all. Since you are taking a Jem'hadar-level stance on your money (your money is dead, if you are victorious, your money comes back to life), you do not have to worry about solvency.

I guess the fundamentals are solid then.

Or they don't matter.

Shorting it isn't a bet they'll fail. It's actually a bet they'll fail and the market will realize it, and in that time the value wont value the company higher to liquidate your position. See Gamestop for an example!

It's also a bet that they will fail quick enough to make this the best opportunity for your money.

Its also a bet the company wont do a secondary offering at the higher share price and recapitalize, completely changing the fundamental analysis

Yea but why let that get in the way of an ignorant and tired trope?

Serious question asked from a place of naïveness: how do you short at IPO assuming one doesn't already have stock?

Usually no borrow until 2 days after. You have to wait until shares hit lending pools (basically people saying they are willing to lend out their shares for a fee).

This doesn't happen until trades from the IPO "settle" t+2 (standard time for a trade from a buyer to a seller to be booked, and for a buyer to actually receive ownership of the shares. Ownership in this case meaning you can lend / margin them etc)

Options usually won't be listed for a week or so at the earlier until after the IPO, so whoever mentioned that below is wrong.

Varies deal to deal and if traditional listing / direct but that is the gist.

You cannot short an IPO.

You cannot short post IPO until the stock becomes marginable.

What you can do, if have a lot of $$, is have one of the desks immediately at after the IPO write you a synthetic short position using an over the counter option.

Yeah you can't do it through the platforms, but if you know someone bullish IRL there's nothing stopping you from making a meatspace agreement to sell them 100 shares of backblaze for $10 one year from today.

I think the SEC would view that as an unregistered put option (only legal for accredited investors), though I can imagine a gentleman’s agreement to quietly settle it in cash.

Yeah I mean, you also can't really bet on football games, but...

That does not account for the counter-party risk

Never short: capital is asymetric and you can be screwed by irrational spending faster than it dries out.

You cannot.

For shorting, being too early is equivalent to being wrong - it's not sufficient to predict that the shares will eventually fall in value, you have to be quite good at predicting when it will happen or you'll just lose money.

I think it takes awhile before you can short a company, definitely not an option for most consumer brokers. CFDs might be possible but that’s not really the same thing

What's that famous quote again...the market can remain irrational longer than you can remain solvent?

Sadly you cannot short an IPO..no one has shares to lend until it is public.

IPOs usually pop quickly regardless, if you believe in shorting it, you can get even better value for your short.

How could they not pop if people can't sell?

A bank is given an allocation to sell at IPO, the IPO roadshow before the IPO is where potential investors have the chance to buy an IPO allocation at the IPO price. This price can move up and down to manage/stimulate demand. On the IPO day, these shares are allocated to investors. They can then hold them or sell part or all of their allocation. Those investors who did not get allocated shares can then buy them on the market causing them to pop.

I'm wondering whether these things ever go down at market open. If not then that's a free lunch.

Yes they sometimes go down.

Up, or down, there are always sales at hand in price movements. And, everyone has a price.

The common upward bump is partially because, why would you IPO if you didn't think there was long value? But also (I think) because in the first few days there isn't that much interest (volume of shares that are 1. tradeable and 2. which people want to let go of ~ IPO price), so the supply is constrained and the supply/demand value dynamic is biased up.

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