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17 Feb Stock Lockup Expirations

As traders, we're always looking for that edge - that one thing that we can exploit that will hopefully pay our bills until it stops working.

This morning, I read a lot of chatter on Twitter about the expiration of the lockup on $GPRO.  For those of you who are unclear about what a lockup expiration is, here is a great explanation from investopedia.

In the above article, it mentions a certain statistic which says, "There is also empirical evidence suggesting that after the end of the lock-up period, stock prices experience a permanent drop of about 1-3%".

The trick is, "when do I know how to pinpoint the turn in the stock so I can capture this 1-3% drop?".

I like to handle lockup expiration a little differently and take advantage of the flurry of volatility in the options market shortly after the stock opens on lockup expiration day. I'll look to sell volatility on a few out-of-the-money options and take quick profits on the fade. If this trade works out, then I'll use the profit to purchase some bear put spreads farther out in time to capture some more longer-term fade on the stock.

If you are new to selling volatility on out-of-the-money options, this trade is NOT for you. However, you can practice the strategy by reading my three-part series:

Part One

Part Two

Part Three

 

Good luck everyone.

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