Tuesday, May 22, 2012

Facebook IPO Day Three -- Short Selling vs. Underwriters


Facebook Day Three

Facebook gets more interesting.

The stock opens below 33 and closes at 31.

There are reports that the underwriters reduced their revenue projections for Facebook and that this information went to some and not others. This could bring serious legal complications.

More importantly Finra says 30 million shares of Facebook were sold short in the first two days.



Chart courtesy of Stockcharts.com

This tells us that the underwriters thought the stock had more demand than it did, and that the shorts had a field day.

Short interest is up in many other social media stocks. The shorts correctly saw Facebook as a bubble and have profited nicely.  They have a big short in Zynga, but unless they know something I don't know, they may want to look to take some of that back and lock in profits.  Wall Street is one place where it does not pay to be too greedy.

My opinion, the FB underwriters, seeing the volume drying up, could try to make a stand at 31. I would not look to buy the stock until it makes a clear bottom. Neither would I try to short it at $7 below the offering price.   

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