Lock-Up Period

A post-IPO window — typically 90 to 180 days — during which employees and insiders are restricted from selling their company shares.

A lock-up period is a contractual restriction that prevents company insiders — employees, founders, executives, and early investors — from selling their shares for a set period after an IPO. The standard lock-up is 180 days (6 months), though it varies by deal and underwriter. The purpose is to prevent a flood of insider selling immediately after the public offering, which would depress the newly listed stock price and signal a lack of confidence in the company's future to the market.

Lock-up expiration is one of the most significant dates on a post-IPO employee's calendar. It's the moment employees can finally convert years of paper wealth into actual liquidity. This creates predictable selling pressure: as lock-up expirations approach, institutional investors often short the stock in anticipation, and the price frequently dips around expiration — a pattern well-documented enough that it's priced in by sophisticated market participants. The dip is usually temporary, but it means the worst time to panic-sell is often right at lock-up expiration.

Tax timing matters enormously around lock-up expiration. Shares held for more than one year from the date of exercise or settlement are taxed at long-term capital gains rates; shares held for a year or less are taxed as ordinary income. RSUs settled at IPO pricing typically have a short-term holding period at lock-up expiration — meaning gains are taxed as ordinary income. Options exercised before the IPO may already have a long-term holding period by the time the lock-up lifts. Understanding your specific tax situation before selling is worth a conversation with a CPA.

What to Plan for Around Lock-Up Expiration

  • Know your exact lock-up expiration date — it's in your equity grant agreement and the IPO prospectus (S-1 filing).
  • Understand your tax basis: RSUs settled at IPO are typically short-term; options exercised before the IPO may already be long-term.
  • Set a diversification plan before the expiration — post-IPO market volatility makes emotional decisions easy and often costly.
  • Consider a 10b5-1 trading plan, which allows you to pre-schedule sales using predetermined price or time triggers — it also provides an affirmative defense against insider trading allegations.
  • Watch for trading blackouts: earnings quiet periods restrict trading even after the lock-up lifts — typically the two weeks before each quarterly earnings announcement.
  • Concentrated single-stock positions carry significant risk — financial advisors commonly recommend diversifying at least 20–30% of a large equity position at first liquidity.

Lock-Up Expiration and Stock Price

The relationship between lock-up expiration and stock price is well-studied and consistently negative in the short term. Research shows that stocks tend to underperform in the weeks surrounding lock-up expiration as markets anticipate insider selling. The size of the dip varies — it's larger when insiders hold a high percentage of total shares and when the company has had a strong post-IPO run that makes selling attractive. For employees, this pattern argues against waiting until the last moment to decide: having a plan in place before expiration reduces the temptation to make reactive decisions based on daily price movements.

Example

A software engineer with 50,000 vested RSUs joins a company six months before its IPO. The stock prices at $20/share at IPO. The lock-up period is 180 days. She cannot sell until the lock-up expires. By that date the stock has risen to $28/share, giving her $1.4 million in pre-tax value. She sets up a 10b5-1 plan before the lock-up expires, scheduling a sale of 25% of her shares at preset price targets. The plan executes automatically, removing emotion from the decision.