A flip generally refers to a dramatic directional change in the positioning of investments, for instance from long to short. Depending on the context or kind of investment, the word ‘flip’ can have different meanings. At least four different examples exist including technical trading, real estate investment, initial public offering (IPO) investing, and professional fund management.
Key Takeaways
- Versatility of ‘Flip’: ‘Flip’ is a term with multiple applications in the investment world.
- Technical Trading Flips: Traders may flip their positions based on price action.
- Real Estate Flips: Investors may flip a house after a short ownership to make a profit.
- IPO Flips: Investors aim to sell new stocks quickly at substantial gains.
- Fund Management Flips: Macro fund investors flip from one asset class to another based on trends.
Understanding Flips
A flip, or reversal of one’s position in the market, can be an effective way to generate profits from a new technical trend. Often considered a short-term strategy, the concept of a flip has broader applications. Below, we explore different contexts in which the term ‘flip’ is used in finance:
Technical Trading
In the realm of technical trading, an investor can flip their position from net long to net short or vice versa based on price action. They might employ this strategy to profit from a new trend, which could last from a few weeks to over a year depending on their techniques. For example, an investor transitioning from net long to net short may sell put options at various strike prices to capitalize on falling prices. Conversely, increasing long positions can benefit traders betting on price increases. These flipping strategies enable traders to profit from price reversals over time.
Real Estate Investment
In real estate, flipping often involves acquiring or controlling properties for a brief period, making improvements, and then selling them for a profit. Residential house flipping sees investors buying homes at low prices, renovating them to enhance value, and then re-listing them at higher prices. The ultimate goal is to sell the property quickly and retain the profit margin.
IPO Investing
IPO investing flips involve buying newly issued stock at an optimal price point and selling it soon after for gains. While some investors aim to build long-term value, others chase quick appreciation. For instance, they may buy IPO stocks with the intention to sell once shares increase by 40% to 50% within weeks or months, targeting next IPO opportunities thereafter.
Investment Management
In fund management, particularly among macro funds, flipping indicates shifting assets from one sector to another in pursuit of higher returns. For example, a fund manager might flip out of high-risk sectors into more promising ones. This strategic flipping minimizes risks while maximizing returns and reflects a macroeconomic approach to portfolio management.
Related Terms: technical trading, real estate investment, IPO, fund management, macro funds.
References
- U.S. Securities and Exchange Commission. “Investing in an IPO”. Page 2.
