Hot Issue

See: Hot IPO. One that is demanded more than it is supplied. One that it is loved more than it is hated. One that is hot more than it’s…cold.

The most common hot issue in the press? An IPO that everyone wants.

Why? It’s free money.

Price talk has been $10 to $12. Then it went up to $12 to $15. Then it went up again to $15 to $18. And traders are mumbling that the first print will be something like $40.

So anyone who buys up to even $30? $32? $35 a share? (something like that) They will make a massive return for one day’s work just flipping their stock to longer-term holders.

Why do hot issues happen?

Well, often banks purposely underprice IPOs to “pay the street” for taking risk, and buying it handsomely. Companies play along, and instead of selling say 30, 40, 50 percent of themselves to the public...they only sell 10 percent. So on only a tiny amount of shares out there trading, even modest demand can drive prices to the sky.

This phenomenon has happened...a lot. eBay. Snap. Facebook. Lyft. And a whole slew of others essentially create hot issues by offering very tiny fractions of ownership of themselves to the public…so that the enormous buyer interest almost guarantees more demand than supply of the security being sold.

Hot issues are great...until they’re not.