Say one has some SpaceX stock, subject to an x day lockout period, but they believe that the share price will be less than the initial IPO price after x days. Or even if it’s not, they’d prefer to lose any gains over taking any chances. What instruments are available to this person to diversify the value at something close to the initial share price? A financial advisor mentioned European-style puts, but I’m not sure that’s allowed in this case.
I’m not an expert on securities law, so I’m not giving legal advice here, but I’d guess a put option or warrant with cash settlement would be allowed. One with physical settlement would probably be prohibited under the lockup.
I will approach this as if it is someone who gets shares in the IPO but can’t flip them quickly. The average retail investor usually can sell the shares quickly, just possibly not being allowed to participate in IPOs for a period from their brokerage firm.
However, let’s say they obtain shares from the IPO and can’t sell. You mentioned put options, that is possible. There will be standard option contracts listed on the CBOE a couple days after the IPO, you can buy a put contract which gives you the right to sell at a particular price by a particular date.
For a newly listed stock and wanting to go out for some length of time, this will not be cheap. Each contract would cover 100 shares. These put options can be bought and sold in the option market.
For an institution or a very large individual investor, they can look into FLEX options. Basically they’d work with a market maker to create custom contract just for them. They’d pay a premium for the right to sell a certain number of shares at a price on a particular day. These don’t trade on a market, they’re more like a forward contract.
I’m sure someone will bring up Mark Cuban and yahoo stock. He used a collar, financing the purchase of put options by selling call options against the stock. This capped his potential gains while limiting losses.
Edit: most of this won’t apply to company insiders or employees. They’ll have their own rules from their compliance department
Actual options are difficult to get for a retail investor because you’d have to post margins, but warrants (which embody the rights of an option into a tradeable security) are easily available. I myself am currently short on oil via put warrants, as a bet on an end to the Iran War by autumn, and I just bought them via an execution-only broker like any share or exchange-traded fund.