We’ve talked on and off for a few weeks about reports that early investors in Lyft Inc. hedged their investments by selling Lyft’s stock short after its initial public offering in March, and that these short sales helped drive down Lyft’s stock price. This was weird, because those early investors all seemed to be subject to lock-up agreements that forbade them from selling or hedging their stock for six months after the IPO. There were reports that the investors had found a loophole that allowed them to use some sort of hedging product that didn’t count under the lock-ups, but I was skeptical, because the lock-ups really clearly banned hedging. That doesn’t mean that banks didn’t market a hedging product, or that investors didn’t use it; it just means that, if they did, it violated the lock-up.
But here is another, more plausible, possible loophole: