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Insider trade on Splunk acquisition?

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Re: Insider trade on Splunk acquisition?

#71

Post by fsckboy »

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?

>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?

Cisco is not allowed to use inside information about Splunk to make the acquisition either. So, if someone did the same analysis that Cisco did they could have drawn the same conclusion.

If this trader has a solid history of making many wild option contracts including many that didn't pay off, leading to average returns, then that's a strong case that this was random.

Re: Insider trade on Splunk acquisition?

#72

Post by dmazzoni »

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.

Fun fact: Cisco is actually headquartered in San Jose, but I believe that both companies have large engineering offices in both San Francisco and San Jose.

For those who don't know, they're both part of the same metro area (Bay Area) but they're 50 miles apart, anywhere from 1 to 2 hours apart depending on traffic.

Re: Insider trade on Splunk acquisition?

#73

Post by thebears5454 »

powera wrote: post #45

If everyone looks at a trade like this as prima facie evidence of insider trading, why are these options even for sale? It is like a casino, except if you win the jackpot you get arrested. Because we run our economy under the law that requires stock prices to be set by ignorant people.

Options reduce volatility, and provide for a more efficient economy/market

Re: Insider trade on Splunk acquisition?

#74

Post by TuringNYC »

ra7 wrote: post #68
jeffbee wrote: post #36

Earlier quoted context omitted.

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.

Not at this volume. Also, typically they do it for indices and typically based on some event (e.g., rate announcement), not on a heels of an unknown acquisition.

Re: Insider trade on Splunk acquisition?

#75

Post by lolinder »

fsckboy wrote: post #71
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?

> 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? Cisco is not allowed to use inside information about Splunk to make the acquisition either. So, if someone did the same analysis that Cisco did they could have drawn the same conclusion. If this trader has a solid history of making many wild option contracts including many th…

> So, if someone did the same analysis that Cisco did they could have drawn the same conclusion.

About the merger, but not about the exact date that it would be announced.

Re: Insider trade on Splunk acquisition?

#76

Post by [deleted] »

AlexandrB wrote: post #48
powera wrote: post #45

If everyone looks at a trade like this as prima facie evidence of insider trading, why are these options even for sale? It is like a casino, except if you win the jackpot you get arrested. Because we run our economy under the law that requires stock prices to be set by ignorant people.

I think the suspicious thing is that these were bought right before the announcement of the acquisition. If they had bough the options at any other time and made money it would not be notable.

[deleted]

Re: Insider trade on Splunk acquisition?

#77

Post by TuringNYC »

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?

>> 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?

Yes, people try to follow private plane transponders of bankers and corp executives to/from corporate headquarters. This is harder for 2 SV companies, it isnt like the plane is flying to some rural HQ.

IANAL, but I'd guess that betting on an acquisition based on public data about private plane routes would make this trade legal IFF that happened.

Re: Insider trade on Splunk acquisition?

#78

Post by [deleted] »

sleepychu wrote: post #64
lacoolj wrote: post #51

Let'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. T…

[deleted]

Re: Insider trade on Splunk acquisition?

#79

Post by bee_rider »

dmoy wrote: post #66
mcast wrote: post #30

Earlier quoted context omitted.

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…

Why don’t people track the investments of senators and congresspeople and race to follow them? It seems like an easy way to get nearly insider trading.

Re: Insider trade on Splunk acquisition?

#80

Post by sausagefeet »

lacoolj wrote: post #51

Let'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

It all depends on your values. A lot of good things happen by trying to reduce unfairness, where possible. Public schools allow anyone to be able to get an education, not just those with money. Health care lets people get the help they need if they are unlucky enough to get a devastating disease.

So the "victim" here is society. People can use their connections to get an advantage over others. They can turn that money and those connections into an even larger advantage. Then their relatives can inherit that and continue that. And if the system is blatantly rigged, why would normal investors want to be involved in the market?

Again, it depends on your values.

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