Market Overhang

Whatever.com went public at $15. The stock zoomed to $30 within the first 6 months. The IPO lock up is now over, and insiders can sell. When the market realized this fact, the stock dropped three bucks.

Why? Market overhang.

That is, there are 100 million shares outstanding for whatever.com, and 18 million of those shares are owned by insiders who still live on ramen in tiny apartments. They'd really like to move over to In-N-Out Burger, a car of their own, and a home (with indoor plumbing, this time). So the threat that, one day, in a stock that averages 3 million shares a day in total trading volume, there come 12 million shares suddenly for sale...yeah, that's terrifying investors. And it's for this reason that companies often do one organized, all-at-once sale of their securities in a secondary offering, so that, in one swell foop, that entire overhang is covered and the market can stop worrying.

Hopefully the stock then goes back to $30 and beyond. In-N-Out Burger ain't getting any cheaper, ya know.