One of the biggest mistakes I watch new traders make is staying too long in a winning position in an IPO. This year a few IPO’s have had great runs, led by Twilio Inc (TWLO) and Acacia Communications Inc (ACIA). But 6 months after the day of the new issue, insiders can sell some of their stock. Many times the high fliers start to sell off in anticipation of this lock-up expiration.
Here is a fantastic example of the effects of a lock-up expiration on a stock. As seen, Twitter Inc (TWTR) had a great run the first 6 weeks after the new issue date. However, the stock started a downtrend in anticipation of this lock-up, until the actual 6 months date. As seen, the actual bottom in the stock was that day, along with some climatic volume.
TWLO started trading in the middle of JUNE, while ACIA started around May 13th. As seen, both stocks have had great runs. The lock-up expirations will be later this year.
The first thing I do is go to Finviz to see how much potential stock could be unloaded. Look at the share float, which is actually available to trade, versus the number of shares outstanding. The difference is the potential amount of stock sold by insiders. As seen the amount of stock that might be dumped in TWLO is over 70 million shares, versus only 7 million in ACIA.
I would be careful in TWLO in the next few months, as the prospect of a big seller of stock could dampen enthusiasm prior to the lock-up expiration.