Lock up period stocks1/17/2024 The lockup period's end can often prove an opportunity for investors to "buy the dip" as stocks will sometimes lose some ground around that expiration date. The lockup period typically lasts somewhere between 90 and 180 days, though longer and shorter periods can be used. Lockup periods aren't a legal requirement, but most investment banks insist on them before agreeing to take a company public. This allows the market to establish a price for the stock and hopefully reward IPO investors with some profits, before the company's insiders start selling. The lockup period is implemented by the company as part of the marketing of the IPO to investors. This sudden increase in the supply of shares available to trade can push the stock lower. Shareholders of the company pre-IPO tend to own a lot of shares and could be tempted to cash in shortly after the IPO if that early jump is large enough. ![]() ![]() The lockup period prevents individuals who already hold shares in the company, whether it be as an early investor or as an employee of the company, from flooding the market with shares. This is because insider sales are frequently prohibited during the early days of the stock’s stint as a publicly traded company through what is known as a "lockup period." One headline that can’t harm (most) freshly IPOed stocks is insider selling. Investors are sensitive to news during this phase because, besides the prospectus, there is limited knowledge about the company and it’s wellbeing. The early days of trading after an IPO can be a wild ride with headlines, or a lack of headlines, capable of swinging a stock up and down with ease. Depending on the hype surrounding the company, the strength of the business, and external factors, the stock can go anywhere from there. After an IPO, the newly minted stock often trades higher, sometimes even to to exorbitant prices during its first day of trading.
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