Lockup Expiry For FitBit, Alcobra

Shares of Fitbit Inc (NYSE: FIT) tumbled to a new all-time low of $12.90 on Thursday and shed more than 8 percent of its value. The stock's plunge is being attributed to the expiration of its lockup period.

A lockup period, according to Investopedia, is defined as the "window of time in which investors of a hedge fund or other closely-held investment vehicle are not allowed to redeem or sell shares."

Every company's stock faces a lockup period following its initial public offering and varies from 90 to 180 days after the first day of trading.

A lockup period prevents large shareholders from "flooding the market" with shares during the initial trading period.

Shaers of Alcobra Ltd (NASDAQ: ADHD) were trading lower by 1.15 percent on Thursday as its lockup period also expired.

Reuters reported that the end of Fitbit's lockup period implies 127.3 million additional shares that have been locked-up can now be openly sold in the market.

Shares of Twitter Inc (NYSE: TWTR) plunged more than 18 percent when its lockup period expired back in May 2014. CNBC noted that nearly 500 million shares were eligible to be sold upon termination of the period.

Investors and traders would be incorrect in assuming that a stock is guaranteed to drop when a lockup period ends. According to CNBC, shares of Facebook Inc (NASDAQ: FB) soared more than 12 percent after 804 million additional shares became available to sell in the market.

See more from Benzinga

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