How does this stock go frrom 16-18 two weeks ago to 36-39 on the IPO as per Bloomberg?. Who wants to buy a Car Manf. at this price. Ford was a bargin at 2 a couple of years ago. Bottom Fishing? Also does anybody know how a market maker takes a position in this company considering it seems to trade up higher everyday.
How do you buy a new issue and make money? As a prof trader? T.I.A.
supply and demand.
It may be different these days but when I was in the markets, market makers on not yet listed IPO’s were basically betting operations. They made virtual markets on a non deliverable basis.
Ford’s share price and GM’s share price can’t be compared directly in any meaningful way. How many shares are issued at that price? The market cap (share price x number of shares) is the important number, and indicates the total market value of the company.
Not quite that high.
Respectfully, just for level setting, I’d be interested to know why the OP believes GM is not worth the $36-39 range people are willing to pay for it. (similar to Walrus’ post)
The world is full of people looking for investments with different risk/reward attributes and using different valuation techniques (technicals, fundamentals, sharpe ratios, trading multiples, portfolio strategies, gut feelings, and pure speculation). Just because the OPs valuation does not match everyone else’s only means that either the OP is incorrect or everyone else is incorrect. And no matter who is incorrect, it will be difficult to parse out who got their math wrong or who was just plain unlucky.
There are a lot of ways to make money on a new issue, most are tried and true:
- Buy and hold for the long term usually works
- If you think it’s over valued, sell short after the IPO
- Options-trading: I don’t know how long it takes for option markets to form on IPOs, but they could be used to take on additional risk or hedging
But GM is on the NYSE, which means they use specialists, not market makers. The specialist doesn’t necessarily have any GM stock (though he probably will buy some on the IPO to keep it in his account) and will set the price by matching bidders to sellers. The actual stock price doesn’t matter – he gets a cut of every trade, no matter what the price.
The stock in his own account is only used if he can’t find a seller (and he will need to buy stock if he can’t find a buyer). Those cases only occur if the stock price is going way up or way down in a short period of time.
This is outdated by about 10 years. The NYSE specialist is a relic at this point. GM will be listed on the NYSE, but only a fraction of trading actually happens through the NYSE.
GETCO, a market making, high frequency trading firm will be the Designated Market Maker in GM stock. That doesn’t mean that all orders will pass through GETCO, just that they will have certain rights and responsibilities(pdf) when trading through the NYSE’s trading systems. GM stock will trade on the NYSE, NASDAQ, Direct Edge, BATS, NYSE ARCA, BloombergTradebook, CBOE, Lavaflow, the Boston Stock Exchange, the Philadelphia Stock Exchange, The National Stock Exchange, The International Stock Exchange, and dozens of off exchange dark pools. All of these venues are electronic marketplaces that provide quotes in GM at the same time. Modern day market makers utilize many, if not all, of the various execution options in their trading operations. In addition to GETCO, there will be many other market makers, trading firms, hedge funds, pension funds, day traders, mutual funds, etc. also trading the GM IPO.
- Ford was on the brink of bankruptcy 2 years ago when its shares were $2. Their value becomes pretty close to worthless if Ford had gone bankrupt.
- You’re comparing apples and oranges. A company whose stock is $2 may very well be worth 10x as much as a company whose stock is worth $35. Lots of people forget that companies can issue as many stocks as they want. A company could have one stock and price it at $20 billion, while another has 20 billion stocks priced at $1 each.