Earlier quoted context omitted.
The SEC absolutely will be looking into this trade.
[flagged]
Insider trading is one crime that the SEC prosecutes regularly, because most people doing it are incredibly stupid.
Insider trade on Splunk acquisition?
61–70 of 371 posts
Re: Insider trade on Splunk acquisition?
#62Can someone explain the mechanics of this specific trade to a noob? The trader bought 550k options yesterday for SPLK to hit $127/share? Since that seemed highly unlikely they were only priced at $.04 each. but now that SPLK is at $145/share they are worth $18 each? so that would be a profit of ~$10m?
You pretty much explained it yourself.
The price of SPLK had no reason to jump to or beyond $127 without some catalyst event so the options were almost worthless. But with the acquisition, the stock had a catalyst and with the share price jumping to $145, those options gained a crap load of intrinsic value (basically the difference of $145 - $127).
Now either the purchaser got really really lucky or had insider information that the acquisition was going to happen. The latter seems much more likely.
Re: Insider trade on Splunk acquisition?
#63Earlier quoted context omitted.
"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.
This is false. Then-sitting Congressman Chris Collins (R-NY) pled guilty and was sentenced to 26 months in prison for insider-trading back in 2019-2020. He was pardoned by President Donald Trump as one of his last official acts as President, but Collins still spent 10 weeks in prison for insider-trading as a sitting congressman (this was for knowledge he gained outside of his duties as a congressman, it was knowledge he got as a member of the Board of a company).
Congresspersons separately aren't allowed to trade on things they learn from their job- that was banned in 2012 under the STOCK act.
Re: Insider trade on Splunk acquisition?
#64Let's assume this turns out to be insider trading. Can someone shed a little insight on why this is worthy of a prison sentence? To me, even if they used information they had and we didn't, I don't see who the "victim" of this crime would be. It truly sounds like a "but it's unfair" argument and I'd really like to know why I'm wrong here. Thanks in advance
I can't tell you why any non-violent crime warrants a custodial sentence. It seems like civil penalties really ought to be enough deterrent and a much better recompense to society.
Who is the victim?
The person who bought the stock you knew was worthless or sold you the stock you knew was gold.
Why is insider trading a crime?
It's an unmanageable market advantage, if we didn't disallow it then people wouldn't play. The people who make the rules benefit from people playing.
Re: Insider trade on Splunk acquisition?
#65Earlier 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…
I initially thought this wasn't the case, but did some research - so for posterity: if you overhear the information in a public setting you may be ok. It depends on whether you have a duty of trust, apparently, and personally I'd run it by a lawyer before firing up Robinhood. [1] Although (1) IANAL and (2) you may still be answering difficult questions if you structure your trades the way this individual did. [1] htt…
There is precedent that even if you are in possession of info that will eventually become public, which you then trade on, you can still be convicted of insider trading.
For example, a Printer for Business Week and a Stock Broker traded on pre-publication information and were convicted of insider trading.
https://corporateinsiderstrading.wordpress.com/2012/02/01/bu...
Re: Insider trade on Splunk acquisition?
#66Earlier quoted context omitted.
"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.
If they obtained info about this through their role as a senator/congressperson, and not just through normal channels. If I understand it correctly:
Insider trading off of classified or whatever info they get from their senate/congress job - not illegal (though imo it should be illegal). (Edit: as mandevil points out, strictly speaking illegal, but largely uneforceable/unenforced)
Insider trading off of info they got from their buddy at XYZ place who knew about something ahead of time, unrelated to their senate/congress job - still illegal, same as for other people.
Re: Insider trade on Splunk acquisition?
#67Let's assume this turns out to be insider trading. Can someone shed a little insight on why this is worthy of a prison sentence? To me, even if they used information they had and we didn't, I don't see who the "victim" of this crime would be. It truly sounds like a "but it's unfair" argument and I'd really like to know why I'm wrong here. Thanks in advance
The person(s) that wrote the options is the victim(s). They lost ~$10m because they lacked knowledge that the insider had.
Re: Insider trade on Splunk acquisition?
#68Earlier quoted context omitted.
"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.
Yeah, this is not that suspicious IMO. The trade was opened yesterday when Splunk was at $119. They just needed a 7% gain by Friday to be profitable on their $127 calls. Traders make those kind of gambles all the time.
Re: Insider trade on Splunk acquisition?
#69Earlier quoted context omitted.
Maybe unless that person was a US senator/congressperson.
This is false. Then-sitting Congressman Chris Collins (R-NY) pled guilty and was sentenced to 26 months in prison for insider-trading back in 2019-2020. He was pardoned by President Donald Trump as one of his last official acts as President, but Collins still spent 10 weeks in prison for insider-trading as a sitting congressman (this was for knowledge he gained outside of his duties as a congressman, it was knowledge…
Banned, but not enforced, and due to the 2013 removal of electronic disclosure requirements, harder to detect?
https://campaignlegal.org/update/part-2-stock-act-failed-eff...
Re: Insider trade on Splunk acquisition?
#70Can someone explain the mechanics of this specific trade to a noob? The trader bought 550k options yesterday for SPLK to hit $127/share? Since that seemed highly unlikely they were only priced at $.04 each. but now that SPLK is at $145/share they are worth $18 each? so that would be a profit of ~$10m?
I know options well, but I dont understand how spreads didnt react to this volume. Wouldnt the asks go higher and higher and higher with that volume? Also, what insane market maker would offer this much volume and take the downside risk? It isnt even clear how they would offlay such a risk unless they just happened to be holding 550k*100 SPLK shares