"I'd suggest a sophisticated investor would hedge with derivatives in anticipation of the substantial downside risk."
I see. I know what some of those words mean. Man, actually I dont know what the hell you are saying. Why is it that the finance sector uses a language of its own? I understand each sector has their own quirks and logisms, but finance is the worst, for something that is kind of simple. If have money, you can buy things and sell things. How come you have all these fancy words to mean what exacly?
I was suggesting an investor could use call-options and put-options to hedge against up or down price movement from the IPO price.
Options are derivatives which gives the owner the right, but not the obligation, to sell or buy a stock. If an investor holds both, in equal (or sometimes unequal amounts), they can (usually) make money from price movement upwards or downwards.
If I was going to buy the stock on opening day or buy options, I might wait until closer to the offer day, or before opening bell, and look at the long-short spread (how many shares are being bid and offered and at what price). This can give a good indication if the price will rise or fall on opening day.
I see. I know what some of those words mean. Man, actually I dont know what the hell you are saying. Why is it that the finance sector uses a language of its own? I understand each sector has their own quirks and logisms, but finance is the worst, for something that is kind of simple. If have money, you can buy things and sell things. How come you have all these fancy words to mean what exacly?