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Over 60 companies will undergo the "lock-up test" between now and the end of 2012, including...

Over 60 companies will undergo the "lock-up test" between now and the end of 2012, including Yelp (YELP), Splunk (SPLK) and Carlyle Group (CG). One assumes shareholders and companies hope the stocks will do better than those of Facebook (FB) and Angie's List (ANGI), which plummeted last week following the end of lock-up periods. For a list of expiration dates, see here.
Comments (11)
  • Yelp...forward P/E x700+...note though it has a small existing float
    Splunk...P/S>21x...... relatively small existing float


    The problem with GRPN, ZNGA, FB ... relatively massive amount of outstanding/float
    19 Aug 2012, 01:23 PM Reply Like
  • That matters only if the people holding the non-floating shares want to sell them. If not, expiring lockups will have no effect on the price. So this is mostly about bad, overvalued companies whose insiders are desperate to get anything they can for their shares before things really go pear-shaped. The expiration of the lockup period is secondary to the fact that these are poor businesses with weak management and absurdly overvalued stock. We've seen all of this before.
    19 Aug 2012, 02:50 PM Reply Like
  • bearfund, great point. YELP had some massive insider selling near the end of July. Definitely not a good sign. Will you try and profit from these lockups by buying puts?
    19 Aug 2012, 08:54 PM Reply Like
  • id,
    Good point and a possible trading idea. Oops, just checked on the YELP put options and they are pretty pricey. Guess da boyz may be expecting some pretty big downside.
    19 Aug 2012, 10:04 PM Reply Like
  • All options on these stocks are very expensive. The high cost of shorting these stocks, driven of course by demand, combined with a thin options market, makes it almost as difficult to make money betting against these stocks as it is to make money betting on them. And since the performance of options and short positions is tied to market behaviour rather than business outcomes, you can be dead right and still lose a lot of money.


    The vehicle I wish existed is synthetic share issuance. I would like to write you a contract that requires me to pay you all the dividends, interest, and liquidation distributions (but not forced conversions resulting from the sale of the company or voting or any other rights granted to shareholders) that you would receive if you had owned the shares for a fixed number of years, ideally a long period of time such as 30 or 99 years. In exchange, you would pay me a premium, logically smaller than the current share price since the contract would come with four downsides relative to the shares:


    1. Credit/counterparty risk.
    2. Limited time horizon.
    3. No ability to profit from a sale of the company.
    4. Limited liquidity.


    This could be sold at an up-front cost similar to an option premium, or could be executed as a swap against a fixed or floating fee. In the up-front implementation, any forced conversion of the shares as in a sale would terminate the contract and require the issuer to rebate a pro-rated portion of the premium. If done as a swap, the contract would simply terminate.


    The existence of such contracts would not only be a spectacular way to make money betting against terrible companies regardless of how long the market remains irrational in its assessment of those companies or the cost of borrowing shares to short, it would also provide a clear metric for the market's opinion of them. The larger the spread between the dividend contract price and the share price, the more disconnected the share price is from fundamentals and therefore the greater the degree of market speculation (or, perhaps, the friction caused by high borrowing costs). Issues with high spreads could clearly be identified as instances of market insanity, giving investors additional warning that the security is overvalued and an opportunity to get the benefit of owning it without paying the premium generated by momentum traders or speculators.


    While I don't normally trade and never from the short side because I am unwilling to take on leverage or put my fate in the hands of the market, I would be very happy to write such contracts against a large number of obviously hopeless companies that I am very confident will never return a dime to their shareholders. I would also consider buying them in cases where I believe in a company whose share price is also being inflated by speculation, or where I don't care about, and therefore don't want to pay for, dividends that will be paid out after I'm dead. These synthetic shares would be a tremendous boon to investors. It's too bad they don't exist, at least not in any standardised accessible form.
    19 Aug 2012, 11:22 PM Reply Like
  • Untrusting, Yelp's lockup expires 8/29. The September 17 calls sell for 65 cents right now. 52wk low is in the 14's although the stock hasn't been public for a year yet. Buying puts on any rallies sounds like a good idea to me....what'd you think?


    Also, ****correction**** the massive insider selling was for SPLK. Take a look, it's a little scary (and $3 below current market price but may indicate a ceiling)
    19 Aug 2012, 11:53 PM Reply Like
  • That was an extremely useful link, thank you.
    19 Aug 2012, 08:58 PM Reply Like
  • Nice site, FB wasn't even on their list, doesnt show up till NOV. Multiple lockups confusing to them?
    20 Aug 2012, 01:17 AM Reply Like
  • Agreed...the October lockup wasn't shown.
    20 Aug 2012, 10:20 AM Reply Like
  • Does Anyone know how many shares of YELP will be released to the market after the expiration date at 29th of August ??
    20 Aug 2012, 05:49 AM Reply Like
    20 Aug 2012, 10:20 AM Reply Like
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