How The Expiration Of A Lock-Up Affects A Company's Shares

27% profit every 20 days?

This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.

After a company hosts an Initial Public Offering, they enter a lock-up period, sometimes known as a lock-in or locked-up period. The purpose of this 90–180 day period is simple and intuitive: to prevent insiders and large shareholders from selling off their stock too quickly as a means of protecting a company's share price.

With the expiration of a lock-up period, in some ways and in some cases the floodgates open. If conditions are right, this can lead to massive numbers of shares being sold off at once, affecting the share price of the company.

ENTER TO WIN $500 IN STOCK OR CRYPTO

Enter your email and you'll also get Benzinga's ultimate morning update AND a free $30 gift card and more!

Here are some examples of lock-up expirations negatively affecting the share price of a company:

Twitter Inc (NYSE: TWTR): In May 2014, shares of Twitter fell by nearly 18 percent and on record volume, bringing the stock to a new (at the time) all-time low.
Fitbit Inc (NYSE: FIT): In February, shares of Fitbit dropped 8 percent, bringing the stock to a new all-time low.
Square Inc (NYSE: SQ): In May, Square's lock-up expiration was a major negative catalyst for the stock, even leading into it with shareholder's reaction to analyst views.

So, for these three companies, the expiration of the lock-up period led to a falling share price that day. Current shareholders of a stock with an upcoming lock-up period should be aware of the possible negative effect the expiration can have on a stock.

For outsiders, a lock-up period expiration may provide an opportunity to buy at a record low share price.

Upcoming Lock-Up Expirations

Aeglea Bio Therapeutics Inc (NASDAQ: AGLE): Tuesday, October 4.
MGM Growth Properties LLC (NYSE: MGP): Monday, October 17.
American Renal Associates Holdings Inc (NYSE: ARA): Tuesday, October 18.
Secureworks Corp (NASDAQ: SCWX): Wednesday, October 19.
Red Rock Resorts Inc (NASDAQ: RRR): Monday, October 24.
Yinteck Investment Holdings Ltd - ADR (NASDAQ: YIN): Monday, October 24.
Global Water Resources, Inc. (NASDAQ: GWRS): Tuesday, October 25.

Full ratings data available on Benzinga Pro.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!