20 May How I Made Money Trading FaceBook Stock
This past Friday, Facebook, the wildly successful and popular social networking site finally went public on the Nasdaq exchange amid huge investor excitement. When the company offered its shares to the public markets at $38 per share, it valued the company at over $100 billion. That’s over 12 zeroes after the 1. It trades under the stock symbol FB. It had been a long time coming for the main founder, Mark Zuckerberg who had preferred to keep the company private for the longest time but he was well rewarded with a current net worth of over $16 billion based on the value of the company. In addition, the company helped turn over 1,000 Facebook employees into instant millionaires.
Let me share with you how I traded Facebook stock on Friday. FB started trading at $42 per share and the share price immediately dropped as sellers dumped the stock. I wasn’t overly surprised due to the fact that many professional investors called the stock extremely overvalued. However, when the stock price dropped to $38 (offer price), I saw huge numbers of buy orders at $38 trying to support the price from dropping. Why is this relevant? You see, this is when I pounced and bought shares at $38 and rode the share price to $40, a 5% share price increase in less than 30 mins of work. However, the stock did soar as high as $42 before falling back to close the day at $38.23.
What was my rationale behind this trade? You see, the company’s bankers who sold lots of pre-public or ipo stock to their clients at $38 didn’t want their clients to lose money on their investment on the first day. This would lead to their clients to hesitate on buying future ipo stocks or doing future business with them. The stock had been widely predicted to soar on its first day but instead it faltered. Such a stumble would have been a significant embarrassment and as a result, the company’s bankers kept throwing money at the stock all day to ensure that it held above the pre-ipo price of $38. To me, this was a perfect example of understanding the dynamics of the stock and if you had the foresight, you would’ve made some easy money.
We’ll have to see if the stock can stay above $38 over the next week or so. If the overall market stays weak, don’t expect the bankers to throw stupid money to support an overvalued stock.