Shares of Facebook (NASDAQ:
) rallied strongly on Wednesday, trading up over nine
Facebook's move comes on an interesting day for the stock.
Wednesday marks the day that well over 700 million additional
shares become available for trading -- a major lockup expiration.
Companies, when first going public, establish lockup periods
wherein existing shareholders are barred from selling their
holdings when the company first begins trading on the public
This process creates a level of scarcity for shares and helps
support share price. Thus, lockup expirations are thought to be
generally negative for the stocks that become unlocked -- more
shares hit the market, raising the existing supply of shares and
lowering the price.
However, this obviously wasn't the case for Facebook.
It is possible that shares could be moving up due to a short
squeeze. That is, many traders may have sold shares short in
advance of the lockup, thinking that shares would sell-off to a
greater extent than they did. When Facebook did not move lower,
these traders bought back shares to limit their losses.
) saw much the same trading pattern on its last lockup expiration
-- shares of the online recommendation site jumped roughly 20
percent when its lockup period expired.
There was also some unconfirmed speculation that Facebook
itself was buying shares in the open market.
Following its IPO, shares of Facebook tumbled. The decline in
share price dominated the financial news over the summer, as
shares slipped from their IPO price of $38 per share to well
under $20 -- a more than 50 percent decline.
On the day Facebook went public, it appeared that shares would
fall below the initial pricing of $38. Such an event would have
been disastrous, but it didn't happen -- shares closed right near
$38. It was widely believed that the stock's underwriters stepped
in to defend the name.
While Facebook has burned those investors who got in when the
stock initially began trading, it has traded around $20 per share
since about mid August. While still volatile, Facebook's recent
performance has been significantly better than other recent IPOs
like Groupon (NASDAQ:
) and Zynga (NASDAQ:
Shares of Facebook traded near $21.60 on Wednesday, up over
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.