Market Overview

Facebook Shares Jump Despite Lockup Expiration

Shares of Facebook (NASDAQ: FB) rallied strongly on Wednesday, trading up over nine percent.

Facebook's move comes on an interesting day for the stock. Wednesday marks the day that well over 700 million additional shares become available for trading -- a major lockup expiration. Companies, when first going public, establish lockup periods wherein existing shareholders are barred from selling their holdings when the company first begins trading on the public market.

This process creates a level of scarcity for shares and helps support share price. Thus, lockup expirations are thought to be generally negative for the stocks that become unlocked -- more shares hit the market, raising the existing supply of shares and lowering the price.

However, this obviously wasn't the case for Facebook.

It is possible that shares could be moving up due to a short squeeze. That is, many traders may have sold shares short in advance of the lockup, thinking that shares would sell-off to a greater extent than they did. When Facebook did not move lower, these traders bought back shares to limit their losses.

Yelp (NASDAQ: YELP) saw much the same trading pattern on its last lockup expiration -- shares of the online recommendation site jumped roughly 20 percent when its lockup period expired.

There was also some unconfirmed speculation that Facebook itself was buying shares in the open market.

Following its IPO, shares of Facebook tumbled. The decline in share price dominated the financial news over the summer, as shares slipped from their IPO price of $38 per share to well under $20 -- a more than 50 percent decline.

On the day Facebook went public, it appeared that shares would fall below the initial pricing of $38. Such an event would have been disastrous, but it didn't happen -- shares closed right near $38. It was widely believed that the stock's underwriters stepped in to defend the name.

While Facebook has burned those investors who got in when the stock initially began trading, it has traded around $20 per share since about mid August. While still volatile, Facebook's recent performance has been significantly better than other recent IPOs like Groupon (NASDAQ: GRPN) and Zynga (NASDAQ: ZNGA).

Shares of Facebook traded near $21.60 on Wednesday, up over nine percent.

Posted-In: News IPOs Intraday Update Movers Tech Trading Ideas Best of Benzinga

 

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