Why would someone buy shares in an IPO in order to IMMEDIATELY sell it at a loss? Is it something I don’t understand or is something fishy going on here (as in they didn’t really sell it for a loss meaning that they received the shares for less than $15.50?)
This is the sort of chart/action that makes me suspicious of IPOs and have yet to try to get in on one…but maybe I am not understanding something?
Apparently this is not limited to just BCEI. This article says that IPOs in general have not performed well, so it doesn’t seem fishy, just an indicator of the market being poor. As for why do they sell at a loss? I guess it’s because they think if they don’t, it’ll be worth even less soon, so they are controlling their losses. Better to sell now and lose 5% than keep it and be left holding something worth half what you paid, with no idea when it will rebound, if ever. Why did it drop in the first place? Because no one wanted to buy it.
Usually IPOs are somewhat underpriced, to give the initial purchasers incentive to buy. While I’m not familiar with BCEI specifically, it sounds like the stock was overpriced. People who did not realize this bought anyway, with the intention of immediately reselling, but when they went to resell, there was nobody left to buy, so the price plummeted.
A few years back I worked for a company that went public and employees were issued some number of shares prior to them actually being available for trade. If you felt that it wasn’t going to do well initially or if you needed the cash – you dumped it right away. I didn’t actually buy the shares at the “initial” price…
BCEI was expected to price in the $20-$22 range, but ended up pricing at $17. When IPOs start trading on the secondary market, there is an opening auction. In BCEI’s case, the opening auction print cleared at $15.50 and then traded sharply down. I’d argue that the underwriters did a poor job of pricing the IPO.