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I have a question regarding how to benefit from major price movements after the end of a lock-up period post IPO.

I have seen that in many cases there are no extraordinary movements in the prices in the day the lock-up period ends, although in some cases there is extreme movements. Like those recently in UBER & Beyond Meats.

My questions are:

  • How do I know how many shares are locked-up, that could potentially be sold of post Lock-up period?
  • My guess is that the locked-up shares should approximately be equal to Outstanding Shares - Free Float shares???
  • If owners etc want to sell shares that have previously been locked up, do they have to give public notice?
  • I have also seen that prices sometimes skyrocket during the day that the lock-up period ends. Is there a rational explanation for a movement like this?
  • Can insiders buy shares during the lock-up period or are they only excluded from selling?
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    “Luke, you’re going to find that many of the truths we cling to depend greatly on our own point of view.” Look at the prospectus for the IPO. You should find many of the answers in it. – Bob Baerker Nov 8 '19 at 12:45
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  1. The number of locked-up shares are generally found in regulatory filings and many research platforms will provide this--i.e. Bloomberg.
  2. Your guess is generally good; however, your number will include other shares like ESOP.
  3. If the owner has more than 5% ownership or is otherwise considered an insider.
  4. Every lockup period is different; generally, though the price falls as the locked-up shares get sold on the open market.
  5. Insiders can generally buy shares during the lock-up provided it follows generally security laws.
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"I have also seen that prices sometimes skyrocket during the day that the lock-up period ends. Is there a rational explanation for a movement like this?"

People are afraid that the locked up shares aren't priced in and that a lot of insiders will sell as soon as the lock up ends. So they wait until the end of the lock-up period to buy. When the sell-off doesn't happen, two things happen:

  1. There's a lot of new buying demand.
  2. There's a strong market signal that insiders have confidence in the company.

Both of these things can put upward pressure on the price.

It is very common that the belief that something isn't priced in when it really is causes the event to move the price in the opposite direction of what people expected.

This happened with the bitcoin halvening. Lots of people expected it to increase the price. So people waited until after it to sell and people bought before it. Then, after it happened, all the people who bought in hoping for an increase had no reason to hold anymore and all the people waiting for an increase to sell also had no reason to hold anymore. The loss of an expected gain also directly put downward pressure on the price.

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