While this is a nice theory in principle, I think it falls down because of the timing of the ZNGA drop. The drop happened exactly when the FB shares were made available to trade (11.30 - 11.38), before this time they had been trading fine (in big volumes). You would expect the people that were holding these shares as a proxy for FB to have anticipated that others like them would have wanted to sell that morning and done so before the moment arrived. In fact, there is evidence that this did happen in that there was big movement of ZNGA in the first hour of trading and at around 10.50.
This means that is was much more likely that it was down to bad trading algorithms. Or that is how I see it anyway...
If you were an ZNGA owner who's also interested in FB, you won't necessarily sell ZNGA before actually buying FB, because you don't actually know that you can get FB at a price acceptable to you until trading opens. In other words, human beings could contribute to the ZNGA price, not just trading algorithms.
Good point. But if you were a ZNGA owner who wanted to buy FB at a lower price than the expected one, you would know that as soon as the FB price was lower than expected, the ZNGA stock would slide (as everyone was using it as a proxy). Subsequently, unless you sold within 2 minutes of the FB price being known, it wouldn't be a good strategy (as you would end up loosing money on the ZNGA sell).
That said, as long as you acted fast enough, that strategy was win-win. Either FB stock was too high and ZNGA rose too, or FB was affordable and you could quickly change to that, before ZNGA fell.
Comments
While this is a nice theory in principle, I think it falls down because of the timing of the ZNGA drop. The drop happened exactly when the FB shares were made available to trade (11.30 - 11.38), before this time they had been trading fine (in big volumes). You would expect the people that were holding these shares as a proxy for FB to have anticipated that others like them would have wanted to sell that morning and done so before the moment arrived. In fact, there is evidence that this did happen in that there was big movement of ZNGA in the first hour of trading and at around 10.50.
This means that is was much more likely that it was down to bad trading algorithms. Or that is how I see it anyway...
If you were an ZNGA owner who's also interested in FB, you won't necessarily sell ZNGA before actually buying FB, because you don't actually know that you can get FB at a price acceptable to you until trading opens. In other words, human beings could contribute to the ZNGA price, not just trading algorithms.
Good point. But if you were a ZNGA owner who wanted to buy FB at a lower price than the expected one, you would know that as soon as the FB price was lower than expected, the ZNGA stock would slide (as everyone was using it as a proxy). Subsequently, unless you sold within 2 minutes of the FB price being known, it wouldn't be a good strategy (as you would end up loosing money on the ZNGA sell).
That said, as long as you acted fast enough, that strategy was win-win. Either FB stock was too high and ZNGA rose too, or FB was affordable and you could quickly change to that, before ZNGA fell.
I think hristov's theory holds up just fine. I think the initial drop was short sales by people anticipating that exact situation.