Last week we took MNDY 290c from 1.5 to 45 within a few weeks on an IPO base breakout play and wanted to share a bit more about the setup.
IPO’s are sexy, new companies becoming public, it is hyped all over the place and there are some real opportunities with fast happening action in the first 50-100 days but is there a real opportunity to play with leveraged instruments like options?
Personally, I like trading IPOs there’s a short-term high risk/reward opportunity if timed correctly. The main challenge is timing. IV (options premium) is extremely high when options become available. IV quickly fades in the following few weeks so the key is to track IV while watching price action.
The first task is to pick which IPO name, look for some fast-growing revenue with decent hype to them, I like tech especially cloud players as a good target but it doesn’t have to be that, anything that was oversubscribed on the IPO is typically a good target.
Then, look for an entry, I found the best timeframe to start looking to build a position is after 4 weeks from first trading, IV should be settled and it’s a good time to start looking for basing action and breakout action.
The main challenge is, post IPO action is never clear, rules are meant to be broken and it can be a very subjective call at any point. The Key is to wait at least a couple of weeks post options offering to make sure IV is not unmanageable
What I’m looking is for is:
Failed breakout -. Often you will see some quick action post IPO which seems to fail quickly, potentially also new highs that fail. These are not your textbook failed breakout but just some non-locked up investors who are happy to sell the IPO action upon new highs
Failed breakdown – That failed breakout will quickly erode option premiums and potentially the first opportunity to start a position
Basing action – no significant action (>10% day) within the base
True breakout – This is the final opportunity but also the stop-loss, new highs will frequently get that IPO base range retested. If it holds or not (on daily close) is key
Let’s take SNOW as an example, it was a highly anticipated overhyped IPO, so we kept watching it, it rewarded us with a 50% move over 3 days
Having a leveraged position on such a move is very rewarding:
Another example is ABNB, which rewarded us with a 33% move over 4 days
Needless to say, also 30% can be rewarding
Most recently we applied these principals on Monday.com, it had solid fundamentals and in a space that is growing rapidly, it rewarded us with a 50% move over 5 days
We first alerted on 7/26
We took some off to cover costs into ER
Not all of these plays pan out and some expire worthless but with such a tremendous risk-reward opportunity it’s definitely worth trying
We have a few more upcoming IPO bases we're tracking, but here's a freebie that could materialize in the next 30 days