Shorting a stock c♒an be a good trading strategy if an investor expects the value of a stock to go down. It is also a risky trade as theoretically the loss on a short trade can be infinite as a stock price can go as high as there are numbers. Any stock can be shorted.

When a private company goes public and sells its stock on an exchange for the first time, the process is known as an 澳洲幸运5官方开奖结果体彩网:initial public offering (IPO). Stocks hitting the exchange after an IPO can be shorted upon initial trading, but it is not an easy thing to do at the start of the offering. First, you have to understand the process of IPOs and 澳洲幸运5官方开奖结果体彩网:short selling.

Initial Public Offering (IPO)

An IPO happens when a company goes from being private to being publicly traded on an exchange. The company and an 澳洲幸运5官方开奖结果体彩网:underwriting firm will work together to price the offering for sale in the market and to promote the IPO to the public to make sure there's interest in the company. Generally, shares in the company are sold 澳洲幸运5官方开奖结果体彩网:at a discount by the company to the 澳洲幸运5官方开奖结果体彩网:underwriter. The underwriter then sells them on the market during the IPO.

Short Sale

When an investor short sells, they essentially borrow a stock and repay it in the future. If you do this, you're hoping the price of the stock will fall because you want to sell high and buy low. For example, if you short sell a stock at $25 and the price of the stock falls to $20, you will make $5 per share if you purchase the stock at $20 and close out the 澳洲幸运5官方开奖结果体彩网:short position.

Challenges of Short Sales With IPOs

To be able to short a stock, you usually need to borrow it from an institution such as your brokerage firm. For them to lend it to you, they need an inventory of this stock. Here's where the difficulty can arise with IPOs and short selling.

An IPO usually has a small number of shares upon initial trading, which limits the number of shares that can be borrowed for shorting purposes. On the day of the IPO, two main parties hold inventory of the stock: the underwriters and 澳洲幸运5官方开奖结果体彩网:institutional and 澳洲幸运5官方开奖结果体彩网:retail investors.

As determined by the 澳洲幸运5官方开奖结果体彩网:Securities and Ex♊change Commi♐ssion (SEC), which is in charge of IPO regulation in the United States, the underwriters of the IPO are not allowed to lend out shares for a 澳洲幸运5官方开奖结果体彩网:short sale for 30 days. On the other hand, institutional and retail investors can lend out their shares to investors who want to short them.

However, only a limited amount of shares would probably be available on the market as the company would've just started trading publicly and the shares may not have been completely transferred. Furthermore, there might be a lack of willingness among investors to lend their shares out to be short sold.

The Bottom Line

While there are regulatory and practical obstacles to short selling stock from an IPO, mainly via the limitations set on underwriters, short selling a company on the day of its IPO is still possible if institutional or retail investors who have purchased the stock lend it out for short selling. However,𓃲 the amount of ꦇstocks available for short selling and the willingness of investors to do this immediately is small.