What is Lock-up Period?

A lock-up period is a contractual restriction that prevents company insiders (founders, employees, early investors) from selling their shares for a set time after an IPO - typically 90 to 180 days.Why it matters: Lock-up expirations are predictable selling events. When the lock-up ends, a flood of shares can hit the market, often causing price drops of 10-30%.Who's locked up:Company executives and foundersEmployees with equity compensationPre-IPO investors (VCs, private equity)Board membersTrading strategy: Some investors avoid buying immediately before lock-up expiration, or even short the stock in anticipation of selling pressure.Why lock-ups exist and what happens when they expire: Lock-up periods protect public investors by preventing insiders from dumping shares right after an IPO, which would tank the price. They give the market time to establish fair value based on fundamentals rather than insider selling pressure. When lock-ups expire, the sudden increase in tradable shares often creates significant downward pressure, especially if the stock is trading below expectations or insiders are eager to liquidate. However, if insiders remain confident in the company's trajectory, they may hold through expiration and the stock can actually rally as the overhang fear dissipates.