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Insider trade on Splunk acquisition?

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Re: Insider trade on Splunk acquisition?

#21

Post by sokoloff »

arcticbull wrote: post #4
YeBanKo wrote: post #3

Is there any legit way in which whoever made this trade could have got a wind of a potential acquisition without relying on inside knowledge?

Knowing about the acquisition puts you in possession of material nonpublic information. It's unlawful to trade on the basis of such information whether you work at the company or not. Passing it along is 'tipping' and acting on it is still 'insider trading.'

There's a third element of insider trading: "in breach of a fiduciary duty or other relationship of trust and confidence"

0 - https://www.investor.gov/introduction-investing/investing-ba...

Re: Insider trade on Splunk acquisition?

#22

Post by yellowstuff »

jldugger wrote: post #11
function_seven wrote: post #9

Earlier quoted context omitted.

My understanding is that having material nonpublic information is not—in itself—enough to make a trade illegal. As long as you're a true outsider, and didn't get that info using illegal means, you can trade on it. Maybe this whale was tracking tail numbers, drove down to the executive airport, and saw that Cisco's chief M&A guy had a huge grin on his face as he stepped onto the plane. (Okay, I doubt that highly, but…

Cisco and Splunk are both HQ'd in SF. If they were at the airport, it was coming back from Jackson hole or something. The real trouble with 'maybe they were legit outsiders' is the options expired specifically today, which means you need to know _when the announcement_ is to profit.

I strongly suspect these trades are not legit. That said, the trader didn't necessarily KNOW that the deal would be announced today. Trading is a game of probabilities. It's possible that the trader used public information to figure out that Splunk could be acquired soon and there was a small but non-zero chance it would be announced today. In that case taking a $22k flyer on cheap options is a good risk-adjusted bet for a well-capitalized investor. (Although they'd have to factor in that this WILL result in a visit from the SEC, which is probably not fun even if you've done nothing wrong.)

Re: Insider trade on Splunk acquisition?

#25

Post by function_seven »

sokoloff wrote: post #7
jkubicek wrote: post #6

Obviously I don't condone insider trading, but it's nice to see someone go all in and make some real money. If you're going to risk jail time, you might as well do it for life-changing amounts of cash. Contrast this with Stephen Buyer who's going to trial and may well end up in jail for a piddly few $100k.

I expect this trade will indeed change the trajectory of their life.

I would like to buy a Reverse Iron Butterfly on the trajectory of this trader's life.

Re: Insider trade on Splunk acquisition?

#26

Post by trowawee »

xyzelement wrote: post #17

I don't know if this is genuinely suspicious or not. Is buying 20K of options an unusual thing? Or is this something that happens regularly with options expiring worthless or with a small gain - and it just happened to hit big this time? IE "someone bought a lottery ticket and won" - interesting to know if they play the lottery every other day (and don't usually win?)

"short-dated out-of-the-money call options that cash out a day after a merger/acquisition" is, like, the definition of a suspicious transaction. Somebody's gonna get a knock on the door from the SEC.

Re: Insider trade on Splunk acquisition?

#27

Post by jumhyn »

kylecordes wrote: post #8
arcticbull wrote: post #4

Earlier quoted context omitted.

Knowing about the acquisition puts you in possession of material nonpublic information. It's unlawful to trade on the basis of such information whether you work at the company or not. Passing it along is 'tipping' and acting on it is still 'insider trading.'

I am far from an expert - but think this is essentially true - but does not universally imply you can't trade on the info. Example: You watch the front door of an office building. From seeing who walks in, you ascertain with 99% probability that companies X and Y are working on some kind of big deal. If you're just a random person with no relationship to those companies, you can trade on this information. (Not legal…

Right, the SEC’s guidance[1] on this specifies that merely trading on MNPI alone is not enough:

> Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.

If you have no fiduciary duty or other relationship of trust and confidence, it’s not insider trading. So to my understanding, if you, say, overheard two execs chatting about this in an airport lounge you’d be free to trade on it.

Note: this only applies to the US! Different countries may define things differently.

[1]: https://www.investor.gov/introduction-investing/investing-ba...

Re: Insider trade on Splunk acquisition?

#28

Post by dtnewman »

xyzelement wrote: post #17

I don't know if this is genuinely suspicious or not. Is buying 20K of options an unusual thing? Or is this something that happens regularly with options expiring worthless or with a small gain - and it just happened to hit big this time? IE "someone bought a lottery ticket and won" - interesting to know if they play the lottery every other day (and don't usually win?)

It's definitely suspicious and will probably be looked into. If it turns out it's a trader who regularly buys soon-to-be-expiring option calls, maybe it'll fly. But if the trade was made by someone who doesn't regularly make $20,000 options bets, they will need a good explanation.

Re: Insider trade on Splunk acquisition?

#30

Post by mcast »

trowawee wrote: post #26
xyzelement wrote: post #17

I don't know if this is genuinely suspicious or not. Is buying 20K of options an unusual thing? Or is this something that happens regularly with options expiring worthless or with a small gain - and it just happened to hit big this time? IE "someone bought a lottery ticket and won" - interesting to know if they play the lottery every other day (and don't usually win?)

"short-dated out-of-the-money call options that cash out a day after a merger/acquisition" is, like, the definition of a suspicious transaction. Somebody's gonna get a knock on the door from the SEC.

Maybe unless that person was a US senator/congressperson.
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