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Re: IPOs
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Can IPOs be shorted? [/ QUOTE ] 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. [ QUOTE ] 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? [/ QUOTE ] 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? [/ QUOTE ] 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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