Re: IPOs
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Can IPOs be shorted?
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No, IPO's cannot be shorted until after they start trading publicly, unless it's a private transaction. Usually, you can't short or trade options on them until 180 days after the IPO.
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What does Malkiel mean when he says insiders?
My guess: The management can sell the shares of the company that they have after 6 months?
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Insiders are anyone who has access to the stock prior to the IPO. That includes management, employees, and pre-IPO investors such as venture capitalists.
[/ QUOTE ]Why does the stock usually drop after the lock up period ends?
My guess: If I’m correct with my assumption above, it’s because it’s a bad sign to see the management cash in their stocks?
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In most cases, it has nothing to do with management's outlook for the company's prospects. It's simply a case of good portfolio management. When a company goes IPO, people with a large stake in the company, such as founders, management and venture capitalists, all of a sudden have stock that is worth a lot of money. In many cases, that stock represents a large percentage of their net worth. So, it's just prudent portfolio management to sell some of that stock and reduce their exposure to a single security.
Once the lock-up period expires, there tends to be a lot of stock for sale from insiders who couldn't previously sell and this drives to price down.
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