Traders follow the practice of "Flipping" because over the years, expert analysts and stock market researchers have observed that IPO returns on listing day tend to be higher than one-, two- or even three-year returns in most cases. This is specially the case for IPOs that come out at the end of a bull run.
This may make you believe that the best strategy is to offload all your IPO stock on the listing day itself. This strategy is especially attractive for traders who want to make quick profits on the listing day.
That said, listing gains are not guaranteed. That’s because sometimes the IPO is overvalued or the demand for a company’s stock is not as high as expected. Also, stock prices get closer to its actual value within a few days. Therefore, it is imperative to be careful if your sole purpose of investing in an IPO is to flip and make a quick buck.
One must invest in shares only if the long-term prospects of the company look good.
But there are times when flipping all your shares could be the most profitable move. This is advisable when the stock gains 70%-80% in the pre-market session. It is best to exit with such a high return, as historically the IPO may not reach the same heights for a couple of years.
This strategy will protect you from any future losses as public scrutiny could pull the share price down in the early years.
Flipping is when you sell off your shares within a few days of the company making its market debut.
Although, it is always better to invest from a long-term perspective, there are certain situations which justifies people to follow a flip strategy.
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