Definition
The lock-up period is a contractual restriction preventing company insiders (executives, employees, early investors) from selling shares for a specified period after an IPO, typically 90-180 days. Lock-ups prevent a flood of insider selling that could depress the stock price immediately after going public. Lock-up expirations can create selling pressure as insiders take profits. Investors often track lock-up expiration dates as potential volatility catalysts. Some IPOs have staggered lock-ups with different expiration dates.
Example
A company IPOs in January with a 180-day lock-up. In July, insiders holding 50% of shares can finally sell. The stock might decline 10-20% on increased supply, creating buying opportunities for long-term investors.
FAQ
What is Lock-Up Period?
A period after an IPO when insiders are prohibited from selling their shares.
Why is Lock-Up Period important?
Lock-Up Period helps investors evaluate regulatory and make more informed decisions.