Getting used to volatility

by Gilbert Keith

EDIT: The Wikinvest chart didn’t work. Let’s try something else.

I recently bought into YOKU on my updown account. I heard about the CRAZY first couple of days of the youku and dangdang IPOs, but I didn’t feel like it was worth buying the stock at $50, so I shorted it at 37, and bought it at 33 something. I didn’t make all that much money, but hey, any green numbers are better than red numbers.

The chart above may not capture the swings of Youku, but it seems like everyday there’s either a 3% rise or a 3% decline. That seems like a lot of volatility. I wonder if this is usual for an IPO. I understand that IPOs are usually a little underpriced for the big investors to buy in, and subsequent trading usually bids up the price. However, It seems like there’ll be a gradual, smooth decline back to the equilibrium price rather than a jagged decline with 3-4% swings everyday.

We’ll wait and see, I guess. Perhaps this is a learning opportunity.

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