The Facebook Proxy: Noise Trader Arbitrage Post Mortem

On Tuesday, I wrote a post recommending that you not hang around too long if you are attempting to arbitrage the noise around the Facebook IPO and trade the proxies such as $GSVC and $ZNGA.

I wrote:

The smartest guys got in last Friday, the second smartest guys got in yesterday and the third smartest guys are getting in today.

You do not want to be the fifth or sixth smartest guys :)

There will be a sell off into these names as the smartest noise trade arbitrageurs who bought last week take profits so don’t get in late or stay too long.

Indeed, all these proxy stocks are getting killed today and this should come as no surprise but I am seeing people out there who are getting dinged. Here’s $GSVC which ran Monday and Tuesday and has gotten crushed since.

We saw a similar thing with the Hunger Games $LGF trade. The movie was released on March 21st which was the high print after a big run up into the hype.

The upshot is this: There is a rhythm to the event trade and a knowledge set and discipline that comes with anticipating and exploiting the noise which I call Noise trader arbitrage.

If you are not well versed in it then just stay away. You can learn how to trade them, if that is your wish, by studying these and other episodes extremely closely and then employing it for the next big event that will inevitably occur.