Looking to get in on the NYMEX IPO

[DesertCat]

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I know very little about this. Can someone explain to me...

1. How people are able to buy IPO's like this? (is it as easy as going on etrade and putting in an order or is it more difficult?)

2. and why it would be a bad idea to buy the IPO because of pure speculation of the price rapidly increasing? (as it almost certainly will)

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Shares in hot IPOs are allocated to premium clients by their brokers. Generate tons of commissions for your full service broker, and you will be on the list for the next one.

As for the wiseness of buying IPOs. If you are a premium client who actually participates in the IPO, theoretically you are getting shares at a discount to what the market price will be. The underwriters deliberately underprice in order to ensure they can unload all of the IPO shares, and that their favored clients will be happy. The company accepts this as a price of going public.

The problems are, sometimes underwriter estimats of the market price are way off. See Vonage IPO for example where the stock immediately tanked. And usually you will be subject to a lockup agreement not to resell your shares for something like 90 days. During the internet bubble IPOs were like minting money for preferred clients. The stocks went up the first day, they went up over the next 90 days, and continued to go up for a while afterwards. But the last group of IPOs didn't go up much, and many were down substantially in 90 days, and in the end many of the companies went out of business.

If you aren't a premium client, and decide to buy when the shares start trading, you may be stuck paying a very big premium. Your strategy is therefore "the greater fool theory". You are going to pay a ridiculous price because you expect a bigger fool than yourself to pay an even more ridiculous price. In this case NMX opened at 2x the IPO price ($52 ish?) and quickly ran to $150, it then fell to $130, then ran to $145, and finally closed at $133. Are you planning to be the genius that payed $150 thinking it was going to close at $200? Or will you have some magical ability to time your purchase at $130 and sale at $145?