- cross-posted to:
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- cross-posted to:
- [email protected]
Now the social media platform is aiming for an IPO in the first quarter of 2024 with a valuation of $15 billion, and has been in talks with potential investors like Goldman Sachs and and Morgan Stanley, per Bloomberg.
OK so wait until the inevitable hours after opening peak and buy puts?
Sorry, what is a “put”?
It’s a bet that a stock will go down. If you’ve heard people say a hedge fund is “shorting” a stock it means they’re making a bet, a short put, that the stock they are shorting will go down in value in the near term.
For pedantry, because everyone loves it, there’s actually a difference between a short sale and a put.
A short sale is when you “borrow” the stock, and sell it at the current price, and then later you buy them back. Instead of “buy low sell high”, you “sell high buy low”.
A put is when you buy the right to sell something at a given price at a given date.
Both are ways of predicting that the price will go down, along with selling a call, which means you might be obligated to sell at a certain price later.
Shorting gives you cash today, and then you pay interest on the borrowed stock.
Buying a put costs a fixed amount today, and might be profitable later if the cost decreased.
Selling a call yields a fixed amount of money today, and might cost money later.
“Calls” and “puts” are types of contracts about buying/selling stocks (they aren’t the stock themselves but are centered around a given stock and its trading price, so they are called “derivatives” as they are “derived” from the stock).
A put is a contract that allows the buyer of the contract to sell stock at an agreed upon price to the seller of the contract, regardless of the current trading price. They are used for a variety of reasons. In one usage, someone who is buying some of the stock at the current trading price may also buy a “put” on the stock at a slightly lower price. This way, they spend a little more money at the time of buying the stock, but if the trading price plummets, they can still sell it at that slightly lower “put” price and not lose too much money.
In this case, the idea would be to buy a “put” (without buying the stock at the same time) when the buyer thinks the stock’s trading price is overvalued. Then when the price falls below the “puts” agreed upon value, buy the stock at the lower price and immediately invoke the contract to sell at the "put"s higher price.
Short selling is when you borrow a stock, then sell that stock, then buy it back in time to return it. The idea is that you think it will go down, so you can buy it back at a discount and make a profit.
A put is when you have the option of doing that – i.e. if it doesn’t go down you don’t have to do anything with the stock, and you’ve only lost the fee you paid for the put contract. It’s a way of hedging your bets.
A publicly traded stock option contract. Buying a Put allows you to bet on the share price dropping.
You get fronted 10 shares of X, based on the value it is today.
In Y amount of time, you need to pay back those X shares.
So if you think price will go down, you sell the shares immediately, and when you think the price is the lowest, you buy X shares again, and give them to who loaned them to you.
If you don’t buy enough shares, the person you borrowed them from buys them at whatever the price is when the clock runs out. And gives you the bill.
It’s also a way to lose insane amounts of money.
Like do it to 10 shares at $100/share. That’s a grand.
If the price goes up to $200/share, you owe twice as much.
With GameStop, people paid crazy prices a share, because they knew the big investors were all shorting.
No matter how high the price was, they were going to have to pay it. But the only people that really made my net, were the ones who sold. A couple people convinced thousand (millions?) Of idiots to drive the price up and then they cashed out.
Where people fuck up is shorting “penny stocks”. If it’s $0.10/share and you think it’ll go to $0.05/share, there’s a chance it goes up to $1.10/share or even more.
A couple dollars increases in price, and people could owe millions.
To add a little to the risk factor of shorting, your possibilities for losing money are endless. When you buy stock, the most you can lose is the price of the purchase. When you short sell you can lose everything you own and then some. If the price keeps going up, then you keep losing money until you close your position (buying the stock).
How does that work? You buy at $100 a share but if it increases to $200 a share you somehow lose money? That’s a strange layer to the stock market. Please explain.
Honestly, I don’t know on this one. It’s tough to guess on internet companies, especially social media.
I think they’re facing pretty strong headwinds that have nothing to do with how we may personally feel about the company. Going off of memory, their valuation was slashed between their first talking about an IPO in 2022 and April-ish of 2023, which is when they started with the push towards monetization and which eventually led to shutting down the API to third party apps. I’m not sure where the $18B falls on that spectrum. I’m also not sure about the underlying metrics, like revenue per user, costs of acquiring new users, and so on. I don’t know if their growth has slowed or accelerated since the API change, but I also don’t think there’s a real competitor at this point (lemmy hasn’t reached critical mass and community fragmentation will probably mean it never will).
On the other hand, I’ve felt since last April or so that the stakeholders are looking to exit. It really feels like spez mismanages the company and is just looking to cash out, take the billion or two and move on to his next thing, after which it will be run by a b-school type who will run it into the ground.
All of which is to say I wouldn’t buy it for my retirement portfolio, but I also wouldn’t short it on opening day. I do suspect they’re underinvested in trust and safety and will run afoul of regulatory bodies, and Reddit is not the household name that Twitter is, so they’ll be easier to ban from markets.