The Chinese internet giant, Alibaba, goes public on Friday, September 19. Interest in buying shares in the company is so high that the company may jack up the initial listing price to $70 a share from $68 a share. The company will trade on the New York Stock Exchange. With this shaping up to be one of the biggest IPOs ever traders are already wondering if the Alibaba IPO will be reminiscent of Facebook’s IPO. According to CBS Moneywatch:
But even as the salivary glands of big investors shift into high gear, there are indications that Alibaba could be reminiscent of Facebook in another way. There’s a question of whether individual retail investors, the people who jump onto first day sales and help spike the share price, are inclined to participate. If they sit out the hoopla, it could be that, like with Facebook, the big investors don’t see a first-day spike and miss the opportunity they expect to cash in.
For those who do not recall the Facebook IPO flop, Facebook opened in the $30 range. Peaked and then fell back the first day to $38 a share. Two months later the stock traded at $27 a share. The fact that the NASDAQ computers could not keep up with trading volume may have been part of the problem, which may be why Alibaba is going with the NYSE. Or it may be as noted, that without a lot of enthusiastic individual retail investors to drive the price up Alibaba (BABA) may go nowhere on opening day. Or, it may mimic Facebook at take a dive over the next month or so.
Questions about Alibaba
The main and constantly recurring issue when dealing with Chinese stocks is transparency or the lack thereof. The Financial Times notes that Alibaba spurs familiar misgivings on transparency.
Dual-class share arrangements that entrench the control of founders have become a feature of internet investing in the decade since Google went public.
But Alibaba, the leading Chinese ecommerce company, has gone one step further: it has separated ownership from control altogether. The controversial plan, which was rejected by the Hong Kong Stock Exchange, forcing the leading Chinese ecommerce company to seek a listing in the US, was detailed in Alibaba’s hotly anticipated IPO filing on Tuesday.
The issue of who is in charge of and who owns what with Alibaba is important for those who want to invest in this stock. If the investing world is happy with what they get the price of Alibaba will go up and if investors become dissatisfied the price will fall, like a rock!
Trading the Alibaba IPO
Taking a contrarian view might be the best approach to trading the Alibaba IPO. This can simply be done by shorting the stock when it comes out and seems to have peaked or it can be purchasing put options on the stock when options trading opens a week after the IPO. In anticipation of the huge IPO traders seem to be selling other tech stocks and stockpiling cash. This would indicate very high trading volume for those trading the Alibaba IPO. Business Insider posted an article, Alibaba Brings Down NASDAQ.
Alibaba is expected to begin trading on the New York Stock Exchange on Friday.
But on Monday the Chinese e-commerce giant was being blamed for the drop in the tech-heavy Nasdaq, which was down as much as 1.2% on Monday afternoon.
The issue may not be one of anticipating up or down but of scalping profits from high volume early trading volatility. As always do your own homework and stay out of trades that you do not understand.
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