Nikola Lock-Up Expiration Could Be A Ticking Timebomb

Nikola Corporation NKLA shares have stabilized somewhat in the past two weeks following a major September swoon.

A Hindenburg Research report accusing Nikola of being “an intricate fraud built on dozens of lies” and the resignation of chairman Trevor Milton triggered the sell-off, but Nikola investors may soon face another major hurdle in the stock’s lock-up expiration.

What Is Lock-Up Expiration? One of the ways companies keep volatility in check during the weeks and months following a new stock's IPO or initial listing is by setting lock-up periods for company insiders.

A lock-up period is a period typically ranging from between three months and a year during which insider and institutional investors are restricted from dumping potentially billions of dollars worth of shares into the market.

Once the lock-up period expires, however, all bets are off. That’s why lock-up expiration dates can be days on which stocks like Nikola experience heavy selling pressure.

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Why It’s Important: Lock-up expiration dates are often volatile enough without the stock being accused of fraud. Nikola’s lock-up expiration is Nov. 30, and the company has been on the offensive to try to convince investors that its company holds true value and prevent a massive exodus of insider investors once the lock-up period ends.

Former hedge fund manager Whitney Tilson is skeptical of the electric truck maker's efforts at last week’s virtual Mission Hydrogen conference.

“Translation: ‘Can we put enough lipstick on this pig to lure enough gullible individual investors into this stock to prop up the price enough for insiders to dump their shares?’” Tilson wrote this week.

Benzinga’s Take: If insiders bail on Nikola in droves on Nov. 30, there may be no way to recover the companies reputation or its stock price.

Nikola trades around $24.38 at publication. The stock has a year-to-date range of $79.73 and $10.32 per share.