The Case for Selling SpaceX Stock Before its December Lock-Up Expiration

The initial public offering (IPO) of Space Exploration Technologies (NASDAQ: SPCX) was a worldwide spectacle. The anticipation was intense as Elon Musk sold shares in the company to the public for the first time. SpaceX, as the company is more commonly known, raised $75 billion from the IPO, with the underwriter's overallotment bringing the total to more than $85 billion. A lot of insiders got rich, but there's a catch that could keep the stock rangebound through at least December. Here's what you need to know.

How much does a share of SpaceX go for?

The IPO price for SpaceX was $135. But when the shares opened, the stock started trading at $150. Given all the excitement around the company's IPO, it isn't surprising that the stock quickly jumped, peaking at just over $200 per share. But once the enthusiasm faded, it crashed to $108. That's not exactly shocking, with the stock now back in the $150 range.

Image source: Getty Images.

Investors are emotional, so there's no telling what will happen with SpaceX stock. That said, there's an interesting headwind that investors need to understand. The insiders who got rich during the IPO are likely only rich on paper, because insiders generally aren't allowed to sell their stock right away. They are subject to lockup periods. In this case, insiders will be able to sell shares on various dates through December 2026.

A lockup doesn't change the number of shares that exist, but may increase the number of shares that freely trade on the market. That means that investors have to absorb more volume, which often puts downward pressure on a stock's price. This isn't unusual at all, as lockup periods are normal fare with initial public offerings. Only SpaceX's record-setting IPO clearly wasn't a normal IPO. Anything that Elon Musk touches seems to get extra investor attention.

Should you sell while the stock is back at the IPO price?

If you are a long-term investor and believe SpaceX is a leading, if not THE leading, space stock, you probably shouldn't sell it. However, if you are a short-term trader who bought into the hype surrounding the IPO, thinking that the stock would rocket to the moon, you might want to consider selling it now that it is back in the $150 range. Indeed, insiders who want to turn their paper profits into realized gains will need to sell their shares, which could be a major headwind for SpaceX's stock at least through late 2026.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.