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Insider trade on Splunk acquisition?

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Re: Insider trade on Splunk acquisition?

#101

Post by fsckboy »

lolinder wrote: post #75
fsckboy wrote: post #71

Earlier quoted context omitted.

> 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.

it's still the birthday paradox, 365 analysts deciding to make investments over the course of the year, some will pick the same dates, and assuming that there was not public information released recently that could have drawn an analyst's attention to Splunk or Cisco "being in the market for acquisitions" in the first place. Perhaps ChatGPT recommended this trade, "chatGPT, if i asked you to go spelunking for good options trades today, what would you suggest?"

The question was, any way this could be legit.

Re: Insider trade on Splunk acquisition?

#102

Post by slig »

TuringNYC wrote: post #70
bryan0 wrote: post #49

Can 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

They hedge using the delta of the option and adjust accordingly.

Re: Insider trade on Splunk acquisition?

#103

Post by piyh »

riffraff wrote: post #94
ryanSrich wrote: post #88

Where's the line for insider trading on something like this? Say you were a low level Splunk or Cisco employee and you had a hunch the acquisition was going to close sometime this week (you're not working on the deal, you just heard through the grapevine that it's happening). Is that considered insider trading?

> Is that considered insider trading? AFAIU, the use of material non-public information always qualifies as insider trading. It does not matter how you got it, and it does not even matter if you work at the company. See https://www.investopedia.com/terms/m/materialinsiderinformat...

Unless you're a congressman

Re: Insider trade on Splunk acquisition?

#104

Post by ryeights »

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.

What’s unusual is the volume of contracts purchased, not the contracts in and of themselves… without knowledge of a merger, these contracts had a 99.9% chance of expiring worthless the very next day, so buying $20k worth is rather suspicious…

Re: Insider trade on Splunk acquisition?

#105

Post by SamBam »

ryanSrich wrote: post #88

Where's the line for insider trading on something like this? Say you were a low level Splunk or Cisco employee and you had a hunch the acquisition was going to close sometime this week (you're not working on the deal, you just heard through the grapevine that it's happening). Is that considered insider trading?

How strong is the hunch?

This person spent $22,000 on buying the options. Unless you are a person who regularly trades this kind of money, the SEC will ask why you felt so confident in it that you made that bet.

If you're a regular "low level Splunk or Cisco employee" who honestly has no access to insider information and you honestly just have a "hunch," you're probably not making a bet at the level that the SEC cares about.

Re: Insider trade on Splunk acquisition?

#107

Post by frontman1988 »

dtnewman wrote: post #28
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.

Why will they need a good explanation? Can't they just say I lucked out and the burden of proving insider trading would fall on the SEC? Innocent until proven guilty right?

Re: Insider trade on Splunk acquisition?

#108

Post by mhuffman »

TuringNYC wrote: post #70
bryan0 wrote: post #49

Can 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

>what insane market maker would offer this much volume and take the downside risk? At the time the downside risk was near zero, right? It was basically free money for them ... till it wasn't!

Re: Insider trade on Splunk acquisition?

#109

Post by lokar »

riffraff wrote: post #94
ryanSrich wrote: post #88

Where's the line for insider trading on something like this? Say you were a low level Splunk or Cisco employee and you had a hunch the acquisition was going to close sometime this week (you're not working on the deal, you just heard through the grapevine that it's happening). Is that considered insider trading?

> Is that considered insider trading? AFAIU, the use of material non-public information always qualifies as insider trading. It does not matter how you got it, and it does not even matter if you work at the company. See https://www.investopedia.com/terms/m/materialinsiderinformat...

Oh, but it does matter. Insider trading is a kind of theft. A theft from the person or company that had the info and (generally) whose trust you violated.

If you develop the info yourself (say, monitoring how full parking lots are at a store to predict earnings), that is fine.

Insider trading is about theft of information, not fairness.

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