Matt Levine’s Money Stuff: Synthetic IPO Pops

IPO arb

A simple good trade is:

1. Buy stock in a hot initial public offering at the IPO price. For instance, buy stock in SpaceX’s IPO at $135 per share.
2. When the stock starts trading publicly and immediately goes up 20% or so, sell it.

This trade is not perfect. For one thing, occasionally IPOs trade down, not up, so there is some risk. For another thing, you might be leaving money on the table if you sell after just one day. SpaceX went up another 20% on its second day of trading. “SpaceX shares have surged nearly 50% in ...