When mainstream IPOs are getting pulled, downsized, and priced below range, it’s time to take a step back and apply extra caution when wading into debut plays. This past week showed us that even when the market is weak, there can still be tremendous opportunities in IPO debuts. But beware, failing to follow your gameplan can cause pain (a lesson I seem to need to be taught again and again).

Before we get started, remember to join me on Benzinga Pro Monday at 9:00 AM EST for a review of last week’s trades and a preview of next week’s IPO plays:

https://www.youtube.com/watch?v=c3DRZgPYINk

Let’s take a look at last week’s plays:

Volcon (VLCN) – With IFIT bowing out of the race, this low-float EV play took a minute to get its bearings: opening at 9.01 and giving debut buyers a bit of a shock when it immediately dropped into a halt at $8.11 and then opening from the halt at $8.00 and proceeding to drop even further to a low of $7.12. Those with high conviction in this play doubled down or joined the party of of the initial drop, and were rewarded with a series of 3 upward halts that peaked at $14.30. It wasn’t the top of the ride quite yet, but things were a bit choppy from there, with a downward halt followed by another upward halt, and a peak that ultimately topped out at $15.50 before cooling off for the remainder of the day. On this trade, applying the “Halts Rule of 3″ would have yielded a decisive win: and an exit point of $12.50. The Halts Rule of 3 has two parts to it:
First part is that when I see Level 2 data indicating a second halt after an initial halt, I start selling part of my position out of the second halt if it comes, and will sell out completely if we hit a 3rd halt. The other, less commonly encountered scenario where I apply the Halt Rule of 3, is when we get the rare 3-hour halt, in which case I will sell out of my entire position when the stock resumes trading: the few times where I’ve seen this happen, the opening off the halt was extremely high and very quickly came back down into a halt the other way.

Life Time Holdings (LTH) – By all performance metrics, this was a pretty poor IPO for investors who bought the IPO, as it debuted at $16.67: well below the IPO price of $18.00. But for IPO traders who recognized the opportunity, the downside appeared minimal, and the upside – while nothing amazing – proved to be an easy opportunity to take a quick exit at $17.50, or a more patient exit at $18.00 later in the day. I skipped this one entirely, but would generally aim to take profits on such a trade with a Limit Order set slightly below the IPO price: say at $17.85 or $17.95.

Theseus Pharmaceuticals (THRX) – This was a dangerous play, with a short opportunity for a nice win offered on the opening run, and nothing but pain and agony for greedy traders who didn’t protect their downside once profits were in hand. THRX opened at $20.80, and made an initial run to a peak of $24.54, before quickly reversing back to the opening price. A brief second push up to $23.50 might have appeared promising at first, but the run could not be sustained, and after briefly flagging around the debut price, the bottom fell out and this stock made a series of lower baselines into a close around $18.00

IsoPlexis (ISO) – By the time Friday rolled around, I was looking at a string of relatively weak IPOs that still offered win opportunities, and liked the story behind ISO more than others that had been solid debut trades, so I tried my hand at undercutting the pre-debut Indication Price, and paid the price for testing my luck when my conviction was not all that strong to begin with. After pricing the IPO at $15, ISO debuted at an opening price of $14.75 and more or less dropped from there to a close at $11.52. There was no real win opportunity here, no baseline formed for a double-down play, and no end of day run. The only hope here is for a bag holding position to eventually turn around when and if the market can get its legs underneath it, or for analysts to pick up coverage and give this thing a boost. It was a sobering reminder that in a cold market, where other mainstream companies are pulling their IPOs due to ‘adverse market conditions’, sitting out anything except for obviously low-float targets is generally better than trying to eek a $1-2 win out of a company that is relatively unknown to retail traders.

Pyxis Oncology (PYXS) – Well, I guess that one bad turn deserves another: and while I generally avoid pharmaceutical IPOs like the plague, the incredible indication price early in the pre-debut balancing process showed it testing $32+ on an IPO that had been priced at just $16. There had been a lot of social media buss around this one, and I got suckered into what I thought was a relatively ‘safe’ limit order to try and catch an initial dip-and-run..
Well, I got the dip off the $19.00 debut, but the run back up never came… this one was a total bomb… just sideways and down throughout the day, to a close at $13.20. These initial pharma drops are somewhat common, and with a bit of patience, they often slowly reverse themselves back. But it can take weeks, or months, so I don’t mind bag holding for a little while to reduce some of the pain, but ultimately will resign myself to eating a loss on this on if I find a more appetizing trade worth moving in on.

Cognition Therapeutics (CGTX) – was the pharma play I should have been focused on, and had been my #2 pick of the week after VLCN: with a float of just 3.77M shares and operating in the Alzheimer’s market, this one was poised for a solid move in the upward direction. True to form, it debuted at $12.15 and steadily rose to a high of $13.78. Nothing particularly breathtaking, but an easy 10-20% win opportunity, and much better than the two losers I’m currently bag holding instead. Happy to have helped some traders get into this play, but will probably reflect on this past week of IPO trading as a reminder to stick to my rule of avoiding biotechs unless they are ultra-low float and have something to do with Alzheimer’s or COVID-19.

If I helped you take some profits on any of the information and research I’ve shared, please consider making a contribution to my whiskey fund:

https://www.buymeacoffee.com/hammondish

Reminder: Join me on Benzinga Pro Monday at 9:00 AM EST for a review of last week’s trades and a preview of next week’s IPO plays:

https://www.youtube.com/watch?v=c3DRZgPYINk

NOTE: I am not a financial advisor and this is not financial advice: the information in this publication is for informational purposes only. Trading stocks is very risky: you might lose money, and past results may not be reflected in future trades. I may have or take positions in the equities mentioned in this publication within the next 72 hours. Good luck out there!