Lyft, Pinterest, Uber, Airbnb … 2019 is shaping up to be a big year for startup tech IPOs.
These big companies can generate a lot of hype by deciding to go public. Traders wanna grab as many shares as possible before prices start to skyrocket. IPO announcements can be big news catalysts.
But buying into the hype isn’t always smart. We see it all the time — after an initial spike, prices start to fall once the hype dies down. That doesn’t mean it’s always a bad idea, but you’re playing with fire with high-risk trades like these.
Like I always say: trading is about minimizing risk and cutting your losses.
So, how can you take advantage of volatile IPOs without risking too much? Sympathy plays.
Sympathy plays can be a great strategy to use on bullish market movements. How does it work? You trade stocks related to big IPOs.
Don’t miss out: Let’s take a look at why these IPOs are such a big deal and how you can potentially use sympathy plays as they come up.
2019: A Busy Year for Startups
There are a few big names that have gone public this year, and companies like Uber and Postmates are on deck. Other companies like Beyond Meat and Slack should also be on your 2019 watchlist.
If you still don’t see what the excitement is about, keep in mind that a lot of these companies already have private valuations well over $1 billion. These are some of the biggest IPOs you’ll probably ever see, and they’re all happening this year.
If you’re out of the loop on these IPOs, now’s a perfect time to catch up.
By Romolo Tavani photo ID: 1007133835
Other IPOs to Watch
Keep your eyes peeled — the 2019 IPO landscape doesn’t end with major names like Uber and Postmates.
Airbnb is sitting on a $31 billion valuation and rumored to go public in 2019.
The growing dating and friend-finder app Bumble is also rumored to go public with a current valuation of $1 billion.
Some of the major IPOs expected in 2019 are coming from companies you might not have even heard of yet, like:
CrowdStrike: A cloud-based cybersecurity platform
Health Catalyst: A healthcare data platform
WeWork: Coworking Space
You can’t make informed trades if you don’t know anything about the companies you’re trading. Get familiar with names like these now so that you can be prepared when it’s time to make moves.
“Three Person Holding Smartphones” rawpixel.com
How to Approach These IPOs
Like I said … IPOs almost always generate a lot of hype. But joining the hype is risky business.
Just look at the Lyft IPO. Lyft was overhyped and its IPO suffered for it. The company’s investors went as far as to sue Lyft, saying the company overstated its market position.
Optimism might cause an initial spike in prices, but it often turns on traders, stabbing them in the back. Instead of trading these IPOs directly, you can try sympathy plays instead.
Sympathy Plays: What Are They?
Sympathy plays are a simple concept: it’s essentially trading by association.
When a company goes public, traders don’t just become interested in the company itself. They’re also more interested in the company’s industry.
What does that mean?
It means you might have the opportunity to make safer trades on smaller companies that offer similar services to the big startups going public.
Why Sympathy Plays Are an Effective Strategy
You can almost think of sympathy plays as making trades based on industry hype rather than company hype. Smaller companies can get a boost just by being associated with larger companies in the same industry.
Once the larger company announces its intentions to go public, it can pump up the prices of those smaller companies before the actual IPO date. As a result, an IPO announcement can create opportunities to trade smaller stocks before traders even get to see whether the IPO meets expectations.
Example From Past IPOs
The Lyft IPO is a perfect example that shows why making sympathy plays might be a smarter play over trading an IPO directly.
As I mentioned before, traders got bullish on Lyft. Prices rose, then they fell — leaving a lot of traders regretting caving into expectations. You already know this part.
But what else could they have done?
The companies DropCar and HyreCar both operate in the rideshare space but aren’t direct competitors with Lyft. DropCar is like an on-demand valet service, and HyreCar is basically a car rental service tailored to Uber and Lyft drivers.
They don’t offer the same service as Lyft, but they’re similar enough that they managed to get dragged into Lyft’s IPO storm.
So, while most traders chewed whether to grab as many Lyft shares as possible, more cautious traders could’ve seen that these two smaller companies were growing in the days leading up to Lyft’s IPO.
So the move would be more about the smaller stocks before Lyft went public and the rideshare market became more volatile. Sympathy plays can potentially be lower risk compared to huge initial public offerings, but always do your own research before making any decisions.
Stay Ahead of the Curve
When it comes down to it, smart trading is about identifying new opportunities and learning how to approach while minimizing your risk.
My Trading Challenge can teach you how catalysts like IPO announcements can impact stock prices and how you can develop a solid trading strategy. You’ll learn how to analyze stocks, identify market patterns, become a self-sufficient trader, and more.
Are you ready to learn the knowledge you need to trade smarter and prepare for the IPOs still to come? Apply for my Trading Challenge — start today!
Which IPO is at the top of your 2019 watchlist? How are you planning for sympathy plays? Let me know in the comments!
