Selling Stock When Your IPO Lockup Expires
If you have stock or options at a private company that’s going public, it’s important to get a plan in place for selling shares when the lockup expires. Current and former employees can’t sell immediately after an IPO due to lockup periods. Exactly how long after an IPO you’ll need to wait for liquidity depends on the agreement with the underwriter. Typically, lockup periods last for 180 days (six months). If you’re expecting a major liquidity event, consider partnering with a financial advisor who specializes in stock options, sudden wealth, and ways to diversify (this is what we do at Darrow Wealth).
Post-IPO Lockups: How Long Until You Can Sell
During a lockup, employees and insiders can’t sell their shares, or at least not freely. How long after an IPO until you can sell will vary. If you’re a current employee, the company will communicate the lockup period. If you’re a former employee, this may be a bit harder. In a typical IPO, the underwriter may require that the lockup extends to former employees. The company may send you a letter, email, or you may need to reach out. If you like reading, you can also sift through SEC filings!
There are a three ways for a company to go public. The route usually changes the length of time employees and insiders must wait to sell their shares. The terms of the lockup can also change before or after the company goes public. Here are the typical waiting periods after a company goes public:
- Initial public offering (IPO): Usually 180 days, but there can be other rules or a combination of provisions and triggers to release shares early. Examples of event-based triggers include: maintaining certain share price(s) over a set number of days, earnings releases, or a taxable event such as double-trigger RSUs and earnout shares. To avoid a surge of employee stock hitting the market at once, the lockup could be a multi-stage release over time, as is being discussed with the SpaceX IPO.
- SPAC mergers: The business combination agreement will have details about trading limitations, but for the target of a SPAC merger, the lockup will usually resemble a traditional IPO.
- Direct listings: Shareholders of companies that go public via direct listing aren’t subject to the typical lockup periods.
Other caveats:
- Certain insiders and directors may have much longer lockup periods and other restrictions due to material non-public information.
- As a public company, employees will be subject to blackout periods around quarterly earnings releases. The first blackout period can sometimes overlap when the 6-month lockup expires. To prevent a situation where employees have to wait even longer to sell, sometimes the lockup period will be shortened to create a mini trading window (maybe a couple of days).
What To Do If Your Company Is Going Public
What Can You Do During a Lockup?
In short: not much. That’s sort of the point. You’ll want to refer to your agreement specifically, but in general, shares cannot be transferred to another financial institution, sold, pledged, or hedged in any way. Most lockups allow transfers for estate planning purposes (like moving stock to a revocable living trust where you are the trustee), but restrictions on sales will follow.
During a lockup, you cannot sell call options or buy put options to reduce the risk of your concentrated stock holding (at least not without prior approval from the underwriter). Further, these tactics are generally prohibited for current employees and insiders even after the lockup ends. For those with concentrated positions, this is a significant risk.
Preparing for a Post-IPO Windfall: What to Do During a Lockup
While there aren’t any assured ways of reducing risk of price declines during a lock-up, there are ways to help yourself on the margins.
Delay major purchases
Before mentally pre-spending your proceeds, keep in mind that sizable windfalls from a company going public don’t happen every day. You are likely on the cusp of a major financial milestone in your life – one that might not repeat itself. That isn’t to say that you cannot – or should not – do something enjoyable with the proceeds, but it is important to wait until those proceeds have materialized.
After all, nothing is certain until it is. Until you turn paper-profits into real ones, your financial situation may not change that much. While founders and early employees with super-low strike prices are likely to realize a windfall of some magnitude, understand that the proceeds could end up being worth millions more – or less – than you’re anticipating.
Manage concentration risk
When considering how much investment risk to take with your other investments, consider your single stock portfolio. This includes common shares, stock options, RSUs, and other forms of equity. For example, if you work for a tech company, consider reducing your exposure to tech stocks in your diversified portfolio. Depending on your level of concentration and diversification goals, it may not make sense to participate in an employee stock purchase plan.
Get organized
- Stock plan administrator and transfer agent: Stock and options usually transfer from Carta to a new stock plan administrator and/or transfer agent. Switching providers will impact how long it takes for employees to get liquidity, even without a lockup period. Download and save all the documents and tax records before the switch!
- Tax planning: Lots to think about here. Gather your pre-IPO holdings, prior exercises, key dates, cost basis, etc. Adjust for any stock splits or reverse stock splits. Find out if your stock meets the requirements for tax-free sales of qualified small business stock.
- Cash goals: Determine any pressing cash needs. Make sure you have enough liquidity for taxes if you exercised or took a tender offer before the IPO. This will help inform your sales plan.
- Trading policy: Between the time a company goes public and the lockup ends, the company will develop its trading policy. This is important! Even when shares are released from the lockup, current employees may still need pre-approval to sell stock.
Engage a stock option specialist and sudden wealth advisory team
If you don’t already have a tax advisor/preparer and financial advisor on your advisory team to help you plan for and manage sudden wealth after an IPO, start now. Navigating the complexities of pre-IPO to post-IPO stock options and equity compensation after a company goes public is a highly specialized, niche practice area. There’s a small community of financial and tax advisors who focus on stock options and equity compensation and deeply understand the tax implications.
The financial advisory team at Darrow Wealth Management is nationally-recognized for specializing in stock options and sudden wealth after a company goes public. We’re your long-term partner for the equity lifecycle and beyond—from the strategic unwinding of concentrated equity to mapping the possibilities for new wealth after an IPO. We do this through an ongoing advisory relationship and in partnership with you, your tax preparer, and often your estate planning attorney, too. We often act as quarterback for our clients, so if you don’t have an attorney or tax professional yet, we can help with that, too.
Stock Option Advisory for Wealth Management Clients:
Pre-IPO Stock Option Advisory
Stock Option Tax Planning
Speak with a Wealth Advisor
Selling Shares and What to Do After the Lockup Ends
IPO Performance and Stock Price Expectations
Single stocks don’t perform like the stock market, and IPOs are notoriously volatile. Be prepared for a first day IPO pop and price volatility afterwards, especially when the lockup ends. Professor Jay Ritter from the University of Florida has done extensive research on IPOs. His data shows, relative to similar market cap companies, IPOs underperformed by .3% in the first 6 months. Over the next 6 months—as the lockup ends and you can start selling stock—underperformance widened to 5.6%.
As you consider sales goals and price targets when the shares are released, try not to anchor to a previous high or the IPO price. The stock may never get back there.
Diversifying and Selling Stock After the Lockup Expires
It’s normal to feel bullish about the prospects of the company. But try to remain as objective as possible about your employer. The stock of one company is very risky relative to the market.
When advising clients about trading and selling shares after the lockup, we review their entire situation and stock holdings, including unvested options and awards. Here are some considerations to plan for stock sales when trading is allowed.
- Price targets: Setting a price target after an IPO can be challenging. Investors tend to anchor to the IPO price or all-time high in the open market. Realistically, any stock may never recover to these levels. And if the stock is doing better than expected, employees can be tempted to move the goal posts. Consider your risk tolerance and overall concentration. If you’re highly concentrated and reluctant to diversify, you may have more to lose if the stock price gets cut in half than you’d gain if it doubled. Consider taking some chips off the table at the beginning and growing more patient as proceeds materialize.
- Tax efficiency: In working with your team, review your holdings and consider what grants or common stock to sell in the most tax-efficient way. The tax treatment can be highly nuanced, especially with considerations like QSBS and earnout shares.
- Risk profile, diversification goals, and cash needs: The aggressiveness of the strategy will depend in large part on these factors. Dollar-cost averaging out of a position is a good baseline way to manage stock price fluctuations.
- Trading strategies: Factors like trading volume can come into play during post-lockup diversification strategies. Advanced trading strategies to unwind a large holding after an IPO can be nuanced and complex, so working with a professional investment advisor is encouraged. Some of these strategies include trading options contracts, direct indexing, portfolio screens and customizations with separately managed accounts, 351 exchanges, and exchange funds. Although there’s no one-size-fits-all approach, we typically employ multiple trading strategies.
Managing Taxes
As the lockup ends, make sure your tax preparer is current on your exercises, sales, vesting of restricted stock units, or receipt of earnout shares. Your tax liability will depend on your holdings and how your sales plan is structured. For example, outright sales of long-term common stock are taxed differently than same-day exercises and sales of incentive stock options. Current and former employees can have different rules on tax withholding. State tax laws vary, too.
Employer tax withholding usually isn’t enough, especially after a multi-million dollar IPO windfall. Before allocating proceeds towards investments, a college savings plan, or lifestyle purchases, set money aside to pay taxes. Taxes may be due in quarterly installments and in April. If you exercised options in one state and sold stock in another, you may owe tax in both states. Finally, consider any additional exercises of ISOs under alternative minimum tax thresholds.
The tax picture is complex for taxpayers with equity after an IPO. For current employees with quarterly blackout periods, each trading window could have a tax optimization opportunity for exercises and sales.
Reinvesting and Allocating Proceeds
Consider engaging a financial and investment advisor to help you construct a diversified portfolio with the proceeds from an IPO. Here are some of the ongoing investment aspects to consider:
- Deploying cash proceeds
- Tax-loss harvesting
- Direct indexing
- Fixed income
- Treasury strategies for upcoming liabilities or purchases
- Risk tolerance shifts and bucketing
- Custom screens for risk management
- Tax-aware rebalancing
- Asset location
Financial Advisor for Stock Options and Managing Post-IPO Wealth
Darrow Wealth Management specializes in stock options and equity compensation. If your employer is going public, work with an advisor experienced with strategic stock option planning, tax implications, and strategies to best manage sudden wealth. You only get one shot at this.
Let’s Talk: Book a Call
Frequently Asked Questions about IPOs and Lockups
What If I Quit Before the Lockup Ends?
If you plan to leave before the initial public offering or during the lockup period, be aware of the implications for your stock options and RSUs. Keep in mind, even if you leave the company, you will likely still have to follow the lockup restrictions and potentially the next blackout period, too.
Read your stock agreements as you are likely to forfeit unvested options and RSUs. And be aware of short windows to exercise vested, unexercised options before you lose them. Employees with incentive stock options can generally exercise up to 90 days after your last day with the company. But this period could be shorter, perhaps as little as 30 days. Non-qualified stock options can be more flexible, but review the terms from the equity agreement.
Employees and former employees may be able to exercise during a lockup period, but they may not be able to do cashless or net exercises. If these exercise and tax withholding methods aren’t available, you’ll need cash to buy the shares and pay any required tax withholding.
Before you give notice, understand what you may be leaving on the table.
What About Restricted Stock Units and Restricted Stock Awards During the Lockup?
Restricted stock units (RSUs) may vest when the IPO happens if they are double-trigger RSUs. Earnout shares could be issued in connection with strong IPO performance in the form of fully-vested RSUs. And after going public, it’s common for companies to change their equity compensation plan to favor RSUs versus options.
During the lockup, RSUs and restricted stock will continue to vest according to the stated vesting schedule. Typically, all forms of equity compensation will generally be covered by the lockup restrictions, except for when liquidity is needed to satisfy tax withholding requirements.
Because RSUs are taxed as regular income when all vesting considerations lapse (time-based as single-trigger or time and event-based for double-trigger), companies typically allow for a certain number or percentage of shares to be sold for taxes during the lockup.
Should I Expect Any Liquidity Issues During a Lockup?
Be aware of a possible cash crunch if you exercise stock options before a lockup. Looking at the calendar is helpful, but the IPO could be late or even delayed a year or more. Liquidity issues arise when taxes are due from a pre-IPO exercise if the lockup extends into April. Also, if ISOs are held through the end of the calendar year, it can trigger a huge AMT tax liability if you’re not able to sell before 12/31. Here’s more on the pros and cons of exercising options right before an IPO.
[Last reviewed February 2026]
