I'd suggest a sophisticated investor would hedge with derivatives in anticipation of the substantial downside risk.
At the $100bn valuation there would likely be far more downside risk than upside, despite the likely initial upside buying. Which could last just a few minutes or hours. With the lower $50-75bn valuation, the initial upside is more likely than with the higher valuation, though a flat pricing band for several weeks or months is more probable. Profit capture would be difficult in this scenario.
* These are general comments on Facebook's valuation and is not investment advice, please consult with a registered investment adviser. :-)
My issue with what you say : I believe options (the derivatives I assume you're talking about) don't start trading till a while after the stock starts trading.
Furthermore, even if they started trading when the stock starts trading, why do you think you have positive expected value to buy the stock and also buy puts? Why not just buy calls?
If either one of these is positive expected value, why do options market makers sell them at the price they do?
Additionally, your talk about the valuation seems trite : you're more likely to make money if you buy at a $50B valuation than if you buy at a $75B valuation is supposed to be informative?
(Edit 2)
Yes, I see your explanation, but you're (again) not really saying anything.
Please see my explanation to the other comment. Thanks.
Edit below in response to your edits.
In the US, options can be written from the day of an IPO and in the case of the Facebook IPO would likely be from existing retail (employees) and institutional investors looking to make revenue on the shares they own by loaning them out for options trading. Though not from the IPO's underwriters who can not loan out shares for options until 30 days after trading begins.
For the valuation I was writing about the up and downside risk of investing at those valuations. It might be obvious to you, but not to others. Actually a lower valuation in some cases could deter investors who had initially heard it would be much higher and they may not understand why an initial prospective valuation decreased.
There are a range of trading strategies that can be used for an IPO. The example I gave was to cover both increases and decreases in the initial trading price that would (usually) allow the investor to capture a (mostly) risk-free profit.
"I'd suggest a sophisticated investor would hedge with derivatives in anticipation of the substantial downside risk."
I see. I know what some of those words mean. Man, actually I dont know what the hell you are saying. Why is it that the finance sector uses a language of its own? I understand each sector has their own quirks and logisms, but finance is the worst, for something that is kind of simple. If have money, you can buy things and sell things. How come you have all these fancy words to mean what exacly?
I was suggesting an investor could use call-options and put-options to hedge against up or down price movement from the IPO price.
Options are derivatives which gives the owner the right, but not the obligation, to sell or buy a stock. If an investor holds both, in equal (or sometimes unequal amounts), they can (usually) make money from price movement upwards or downwards.
If I was going to buy the stock on opening day or buy options, I might wait until closer to the offer day, or before opening bell, and look at the long-short spread (how many shares are being bid and offered and at what price). This can give a good indication if the price will rise or fall on opening day.
If you happen to get a trade in, a quick dump might net you quite a bit. There's going to be a frenzy on this IPO.
The ZNGA and GRPN comparisons probably aren't going to be reflective of what will actually happen. Facebook is largely viewed on a tier with AMZN and GOOG.
But, really, you should ask yourself this question again after reading through the SEC S-1 filings when they're released. Make a good long term decision.
