Investing professionals are salivating at the prospect of day trading Facebook shares in the coming weeks due to the sudden expected increase in float of the issue as several tranches of restricted (or “lock-up”) shares come on the market. We already have some indicator as to how Facebook shares will perform in the coming days given we have already seen how the first tranche (271 million shares) release impacted share price (read: down 6% August 16th). All told between now and the end of the year 1.2 BILLION additional shares will be unfrozen and freely available for insiders to sell as they wish.
What to Expect from Facebook Shares on Lock-Up Expiration Dates
Given the stock price plummet from IPO levels and insider knowledge about the future revenue prospects (or lack thereof) due to the global migration to mobile web use – expect the shares to fly out of insider portfolios like rats leaving a sinking ship. We have seen this previously on August 16th 2012, and we here are expecting a repeat of the trading fiasco on October 29th (234 million shares released) and an absolute bloodbath on November 14th (777 million shares unrestricted!). All told, the 1.2 billion shares (156 million December 14th) will become available for sale on the open market. Compare this with the 180 million shares issued in the IPO and you have the makings of a fire-sale that will make the Facebook’s IPO fiasco look like a day at the beach!
How to Capitalize on the Upcoming Turmoil
One thing is certain: Facebook’s share price will be under a tremendous amount of pressure as market-makers will be attempting to manage the deluge of new shares available for trading on the days restricted shares come free. Most market analysts expect to see a dip once the October 29th restricted shares come available. If there is more than a couple percent drop during the trading session it stands to reason that the anticipated bloodbath on November 14th will in fact come to pass. There are five principal ways investors can take advantage of a falling stock price. Whichever method works for a given individual will depends on their level of capital, willingness to take on risk, and desired duration of investment. Ways to take advantage of falling share prices without going short directly (in order of ascending capital requirement and duration) include binary put options, put options, and selling long positions ahead of the release. Other ways to make money day trading on a falling stock price include going short (requires high capital commitment and a margin account) or alternatively selling (writing) call options.
Be Wary of the Risks Involved with Day Trading Stocks
Any of the above strategies involves a significant amount of risk and could result in loss of substantial amounts of capital. Margin trading can involve even greater risk including losses which exceed an investor’s equity capital and should not be considered without careful understanding of the risks involved. This article should not be considered financial advice and does not take into account any particular individual investor’s circumstances including cash-flow needs, capital levels, and appetite for risk, amongst other factors.