How to Sell Post-IPO Stock

Stocks can be quite volatile after an IPO.

Stocks can be quite volatile after an IPO.

IPO stock represents the initial public offering of ownership in a company. Many IPOs are highly anticipated, and some can trade up dramatically in price. To capture any of those profits, you must sell the stock in the open market. If you sell the stock on the first day of trading or any time in the first year after you bought it, you'll have to pay ordinary income tax on any gains. Only stock you sell after more than a year qualifies for the more advantageous capital gains tax rates. In some cases, your ability to sell IPO stock may be limited.

Step 1

Confirm the number of shares you own. Many IPOs are oversubscribed, meaning the demand for shares exceeds the available supply. Additionally, many firms first allocate shares to institutional investors, hedge funds and mutual funds. As a result, you may not get all the shares you think you are buying. For example, if you put in an order for 500 shares of a stock on its IPO, your brokerage firm may only end up allocating you 100 shares.

Step 2

Verify that there are no restrictions to sell your stock. If you are an officer of the company going public, you most likely won't be able to sell your stock until the "lock-up" period ends. Depending on the stock, this period might be three months, six months or a year or more. You may be restricted even if you are just an employee of the company or if you have any relationship whatsoever with it. If you are simply a member of the general public, your brokerage firm may request that you don't sell the stock for a period of time, often until the lock-up period expires. While the firm has no legal ability to restrict your sale, you may find yourself limited in future IPO allocations if you violate a firm's suggested restriction.

Step 3

Enter your order to sell with your broker. Since IPO stocks tend to fluctuate wildly when they first begin trading, you might consider entering a limit order or a stop-loss order to protect yourself. A limit order allows you to designate a price you are willing to accept for your stock; if the stock doesn't hit your price, you continue to own it. A stop-loss order is an order to sell your stock if it has fallen by a certain amount or to a certain price.

About the Author

After receiving a Bachelor of Arts in English from UCLA, John Csiszar earned a Certified Financial Planner designation and served 18 years as an investment adviser. Csiszar has served as a technical writer for various financial firms and has extensive experience writing for online publications.

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