Yandex - how to trade a hot deal

Russian search engine Yandex rules the headlines Tuesday, trading at $35 midday after an IPO, priced at $25, was oversubscribed by a factor of 17, according to Reuters.

Is there a way to trade a deal like this for profit? Sure. But the first thing to realize is, how not to trade it... which is to say, to be aware of what happens during the IPO period, and, typically, on the opening day too.

The deals you really want during the advance offering -- the really sweet ones -- you're not going to get. These are snapped up by the Steven Cohens of the world, investors and brokers who are generating billions in trades and commissions and thus, have favors to call in. Life is unfair, size matters, and all that.

The deals you can get, you don't want. If they've been left on the table by those with the clout to demand inclusion, they're generally not worth participating in.

This brings us to the opening day of trading, when some people who got shares in the IPO are keen to take profits, some who didn't are keen to snatch up the stock, and all sorts of other conflicting forces are engaged in a tug of war over shares in a company whose trading history is measured in minutes. Generally this too is a pit you don't want to jump into.

I've seen IPOs open up through the roof, then end the day 40 percent, 50 percent from the highs. The volume may go crazy. Alternatively, some issues just sit there, lifeless, motionless, torpid.

From what we've seen so far, Yandex (YNDX) definitely has a pulse. It's gotten the jump start, or the heart paddles, if you will, and -- WHAM! -- is up and kicking. Still, I normally wouldn't mess with the first day of trading. If you just need some action, you may as well play roulette, or go make a sports bet.

What we do in our shop is watch and wait. Possibly for days, weeks; sometimes, months. Give the issue some time. Let the stock develop, form a base. Wait for it to challenge the historical highs a couple of times -- often set during the first day of trading. During this period, a lot of holders of the stock are just waiting for it to "get back" to the highs it once reached.

When the stock finally breaks through those highs, with reasonable momentum, that's when we move on it. At that time, we can get as many shares as we want, and we're not too worried about the price.

That's when you want to get in -- and how you trade "the hot deal." If it's in the headlines, it's already happened, and if it's in the IPO stage, you either can't get it, or don't want it.

We don't chase the news ticker; like a tiger, we like to lie still, wait for something to move by that looks tasty... and pounce.

Ownership disclosure: At the time this product was published or posted, Damon Vickers & Co. and Nine Points Capital Partners had no position long or short in Yandex (YNDX).

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