IPO Lock-Up Expiry
Insiders who held shares before an IPO are contractually barred from selling for a fixed period, usually 180 days, and the flood of new sellers once that period ends is one of the most reliably tradeable calendar events in equities.
An IPO sells only a slice of a company to the public — often 10% to 20% of shares outstanding. The rest sits with founders, employees, and early investors who, on paper, could all sell into the market the moment the stock starts trading. Underwriters prevent that with a lock-up agreement: a contractual promise from insiders not to sell for a fixed period, almost always 180 calendar days from the IPO date, occasionally shorter for a subset of shares.
The day that period ends is the lock-up expiry, and it is known publicly, in advance, down to the exact calendar date, because it is stated in the IPO prospectus. That combination — a large, fixed, foreseeable increase in tradeable supply on a known date — makes lock-up expiry one of the cleanest calendar-driven patterns in equities.
A lock-up expiry is a pure supply event: nothing about the company's fundamentals changes on that date. What changes is how many shares are legally free to sell, and the average stock sees negative abnormal returns around expiry as the market braces for insider selling, whether or not insiders actually sell in size.
The supply shock
Worked example
A company IPOs 20,000,000 shares out of 150,000,000 shares outstanding, so 130,000,000 shares are locked up. If even 10% of those locked-up shares are sold in the weeks around expiry — a conservative, commonly observed fraction — that is 13,000,000 shares hitting the market, roughly 65% of the original IPO float, on top of whatever normal daily volume the stock already trades. A stock trading 1,500,000 shares a day on average would need nearly nine full days of normal volume absorbed as extra supply in a short window, which is enough to move the price even without any change in the underlying business.
What this means in practice
Event-driven and quant desks track lock-up expiry dates from the prospectus and often build short positions or reduce longs into the date, since the effect shows up in average returns across many IPOs even though any single company's insiders might not sell at all. The effect is strongest when insider ownership is concentrated (a few large holders rather than thousands of small ones, since concentrated holders can coordinate or act on the same information about optimal timing) and weakest when insiders have already signaled long-term intent, such as a founder publicly committing to hold.
Do not treat the lock-up date as a guaranteed sell signal for every name. Underwriters and issuers can negotiate early releases, partial lock-ups on only some share classes, or staggered expiries across different insider groups, so the actual date and size of the supply increase can differ from the headline 180-day figure — always check the specific prospectus terms.
Further reading
- Field and Hanka, 'The Expiration of IPO Share Lockups', Journal of Finance