[m_evans]

This is typically not the case. The lock-up specifically prohibits trading options, pledging shares as collateral for debt, selling shares, or gifting shares to charities. It also usually a catch all for benefiting directly or indirectly (through a trust or foundation)

Source: I founded GrubHub and wrote the article referenced here.

[nemo44x]

Thanks for information - I wasn't aware this applied to non-insiders or ex-employees too for derivatives that expire after the lock-up.

I guess no amount of financial engineering can unscrew the little guy. :)

BTW, love your company and use it often, thank you!

[timr]

This was my experience, as well: my lock-up contract explicitly forbade trading in any company security, derivative, etc.

I don't know how they'd enforce this, however. Seems like you'd have to have a big mouth, and they'd have to be willing to fire you for it.

[prostoalex]

They don't enforce it pre-emptively, but can hit you with a case many years after if the amounts involved are worthwhile of investigator's attention.

[timr]

Unless the lockup restriction is part of your state's laws (it isn't in California, AFAIK), it's not a matter for an "investigator" -- it's a private contract between yourself and your company.

It does vary state by state, though, so I suppose it's possible that some states have laws that prevent you from trading in derivatives during a lockup period.

[gaadd33]

I wonder if the lock up for going public is more strict than when the company is being purchased for stock in a public company. E.g. Mark Cuban seemed to be able to use options to hedge his exposure to Yahoo: http://investmentxyz.blogspot.com/2006/05/cubans-collar-anat...

[adventured]

Broadcast.com went public July 18, 1998. Yahoo purchased BCST in April 1999 (or announced it then, not sure when it closed).

I'm guessing even if it were a potential issue, enough time had passed from the IPO, and it's unlikely the same restrictions apply to an acquisition. Cuban likely held his shares free and clear at that point.

A $1.4 billion collar would have drawn a lot of attention from the SEC, doubly so given the publicity and scale of the Yahoo transaction.

[caseysoftware]

Thanks for the article. It's really fantastic and eye-opening on the process, how things happen, and who's involved at each stage.

I've been watching a couple companies closely to figure out when/if they're going to go and now I have a better sense of the process.