Love it or loathe it, social networking site Facebook is hard to ignore. Especially now that it is planning its IPO. And while there are plenty of reasons not to board this particular float as a shareholder (for more on this see my colleague John Stepek's article Why I won't be buying shares in Facebook) there are some interesting opportunities for spread betters to make a quick bob or two.
Did you know for example that you can play the size of the share price move on day one? Many punters reckon Facebook will surge once its shares are up and trading. After all, business-networking site LinkedIn floated at $45 per share and then fizzed up to $95.25 a rise of 109%. Web-based discount coupon group, Groupon, closed up a more modest 31%. Meanwhile, games portal Zygna finished down 5%.
Which one is Facebook likely to follow? Given the hype surrounding Mark Zuckerberg's firm (there has even been a film made about it The Social Network which is not something you can say about the others) it's fair to assume it will jump quite a bit on day one. But how can you make money rather than just watching from the sidelines? Enter IPO spread bets.
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Via spreadex.com you can currently bet on the size of the first-day share price jump as a percentage. Say, for example, the spread is quoted as 50-55. That suggests a jump of between 50 and 55% between the time the share is listed and the end of the first day's trading. If you are a Facebook bull you could place an up bet ('buy the spread') at, say, £10 per point. You don't have to wait until the flotation date (which is not yet known) to cash in. If other bulls push the spread up to, say, 60-65 you could close out by selling at 60 to take a profit of five points, or £50.
Alternatively, at igindex.com you can bet on the market capitalisation of Facebook when it floats. The current spread is 117-119 (in billions of $US). If you think Facebook will be worth a lot more than that, according to its first day market capitalisation, you could buy the spread at 119; again at, say, £10 per point. If the market capitalisation is pushed up between now and the flotation date, you don't need to wait until the flotation to take out a profit. That's the beauty of spread bets.
Either of these spread bets can, of course, backfire if confidence in the Facebook IPO suddenly takes a dive. And it's fair to say that IPO pricing is a complex mixture of art and science that's best left to the professionals. But that needn't stop you having a bit of safe fun just keep the bet size small - especially if you are a novice.
Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.
He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.
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