This morning, the highly popular real estate website Zillow Inc.(NASDAQ:) debuted for trading. The stock was originally priced at $20.00 a share, however, the stock opened at $60.00 a share. The shares of Zillow stock plummeted as investors took profits right away when the stock began trading at 10:30 am EST. Zillow stock is now trading around $38.00 a share. This type of trading activity happens all the time with these high flying IPO's. Normally, it is the small retail trader that jumps on these stocks as soon as they open for trading. Unfortunately, these traders will usually find out that the stock will usually decline faster than a bowling ball being dropped from a skyscraper.
Many amateur traders and investors bought another IPO at the open today called Skullcandy Inc.(NASDAQ:SKUL). This company makes fancy headphones, and iPod cases with a skull logo printed on their product. The stock opened up at $23.00 a share, it traded as high as $23.40 a share a few minutes after it began trading. Right now the stock is trading at $20.00 a share. Again, it is the small retail trader that jumped into this stock right at the open. If you happened to buy this stock at $23.00 you are now underwater by $3.00 or 13.00 percent.
Traders and investors should usually wait for the stock to settle in for a few days to weeks after an IPO. If you are one of the fortunate investors that received shares from the underwriter it is great to simply sell the shares at the open for a huge gain, however, are not that fortunate. Traders and investors can simply look at the popular Linkedin Corp.(NASDAQ:LNKD) IPO on May 19, 2011 as another example that went bad if you were not quick on the trigger. That stock opened at $83.00 a share and traded as high as $123.00 by 11:30 am EST. Soon after that extended rally the stock began to violently sell off. That day the stock closed at $93.00 a share. Within a couple of weeks the stock was trading as low as $60.00 a share. Traders must be very savvy when trading these IPO's. It is always prudent to wait until IPO sets a trend in a few weeks or months. Then traders can trade off the patterns on the charts.