Go directly to jail, do not pass go, do not collect $10M.
isn't it closer to 400k?
$22k * ($18.30/$0.04) = $10.065M
Insider trade on Splunk acquisition?
31–40 of 371 posts
Re: Insider trade on Splunk acquisition?
#32Go directly to jail, do not pass go, do not collect $10M.
isn't it closer to 400k?
I think $10M is right. The options cost $0.04 each yesterday (per the tweet), so spending $22,000 would get you 550000 options. Those options are now worth $18.30 (per the tweet) for a total value of ~$10M.
Re: Insider trade on Splunk acquisition?
#33Re: Insider trade on Splunk acquisition?
#34Earlier 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.
SPLK option expiration dates are weekly out to 6 weeks.
Re: Insider trade on Splunk acquisition?
#35Re: Insider trade on Splunk acquisition?
#36I 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.
But lottery-ticket options trading is done all the time. The fact that the options expire the next day is part of the strategy (because before that, the options cost more). $20k might sound like a big stake but you don't know the size of the trader's portfolio, it might be 0.01% of it, and they didn't stand to lose the whole thing necessarily.
Re: Insider trade on Splunk acquisition?
#37Re: Insider trade on Splunk acquisition?
#38Not defending anyone, just saying.
- If I have $1000 I might choose to spend $2 for a gambling. - If the trader have $10M already, it might be reasonable for him/her to spend $20k gambling on some rumors.
This guy could be someone who is already rich.
Re: Insider trade on Splunk acquisition?
#39Earlier quoted context omitted.
isn't it closer to 400k?
I think $10M is right. The options cost $0.04 each yesterday (per the tweet), so spending $22,000 would get you 550000 options. Those options are now worth $18.30 (per the tweet) for a total value of ~$10M.
An option contract with an ask of $0.04 costs $4. The trader bought 5500 options for $4 and they’re now worth $1830, so it’s still a $10M profit.
The listed option price is the price per share, and a standard option contract is 100 shares of exposure.
Re: Insider trade on Splunk acquisition?
#40Broke Rule #2 of Matt Levine's "Laws of Insider Trading": "Don’t do it by buying short-dated out-of-the-money call options on merger targets."
Came to post just that. Great read!