Wednesday, a pool of about 800 million Facebook shares were set free as the next tier of restrictions on insider selling of the company’s stock expired - but even those disgruntled Winklevii didn’t cash out. While many observers expected the worst, and indeed plenty of short sellers bet on it, instead Facebook shares shot up 12.6%, closing on Wednesday at $22.36. (The stock slumped slightly on Thursday, closing at $22.17.)
While those numbers still don't approach the company’s IPO debut of $38 a share, it certainly was a perky development given Facebook stocks overall issues. So what gives?
With so many traders betting against Facebook (often with good reason), it’s wholly possible that the company’s stock, like Yelp's following its own lockup unlock back in August, was buoyed by a so-called “short squeeze.” Investors held their breath when Facebook opened on Wednesday, bracing for the great share purge of November 2012 as insiders were finally able cash out.
When that didn’t happen, droves of short sellers - investors who have promised to sell stock for a certain price, betting that the stock price would fall and they'd be able to buy it for less - scrambled to buy the Facebook shares they needed to satisfy their obligations before the stock rose even more. That pushed the stock even further into the black.
While November 14 wasn’t the first lockup to expire since the company went public back in May, it was the biggest - and the biggest cause for concern. Facebook’s IPO came with a complex tiered system of lockups, with the first ending on August 16, after 90 days of public trading. At the end of the first lockup, Facebook closed at $19.88 - just 47% of its IPO valuation.
The next Facebook lockup expires on December 14, when an additional 149.43 million shares will be set loose in the wilds of public trading. But the real question remains: Will the Winklevii hold fast?