Insider trade on Splunk acquisition? • Hacker News Board

Re: Insider trade on Splunk acquisition?

#171

Post by jahewson » Thu, Sep 21, 2023, 6:40 PM UTC

kasey_junk wrote: post #133

kypro wrote: post #120

I know this isn't what happened, but what if one day I'm waiting for the bus and I over hear a guy talking on their phone about an imminent acquisition? 1. Would that still fall under insider trading even if the information was accidentally heard, and even if I wasn't 100% sure of its accuracy? 2. If I had no clear connection to the company how would it be proven that I was trading on insider information? Surely it's…

The SEC has recently been pursuing very expansive insider trading definitions, and they are occasionally losing, so it’s very hard to say. But traditionally in the US insider trading is not about market fairness, it’s about not stealing from shareholders. So if you have no obligation to the company or it’s shareholders you aren’t an insider. The phrase is “breach of a fiduciary duty or other relationship of trust and…

This is not correct. If the tip came from an insider, it’s insider trading no matter who acts on it. See for example Martha Stewart who traded on an illegal tip from her stockbroker.

Re: Insider trade on Splunk acquisition?

#172

Post by alexchantavy » Thu, Sep 21, 2023, 6:41 PM UTC

eastdakota wrote: post #100

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?

Yes. The one bit you’re missing is that a call option is the right to buy a stock at a certain price typically on or before a certain date. To make the numbers simple, imagine a stock trades at $10/share. If someone came to you and said: how much would you be willing to pay to have an option to buy the stock for $100/share? The correct answer is: it depends. If it’s the right to buy the stock for $100/share at any po…

What does out of the money mean?

Re: Insider trade on Splunk acquisition?

#173

Post by mrb » Thu, Sep 21, 2023, 6:41 PM UTC

The screenshots demonstrate the trader purchased only $1,040 worth of options, not "$22,000" as claimed in the tweet. So the trader turned $1k into $475k.

See the first photo in the tweet, the top left chart (45-day volume on the SPLK 127 C 09/22/2023 options) shows a volume of about 260 options was bought. The second photo confirms a volume of 260 (see "volume" column, first row).

Options are for 100 shares. So 260 options times 100 shares times $0.04 equals $1,040. Meaning the insider trader turned $1,040 into $475,000.

(Edited my math - an option is $4 as it's for 100 shares - thanks pc86.)

Re: Insider trade on Splunk acquisition?

#174

Post by cmcaleer » Thu, Sep 21, 2023, 6:41 PM UTC

hash872 wrote: post #154

kasey_junk wrote: post #133

Earlier quoted context omitted.

The SEC has recently been pursuing very expansive insider trading definitions, and they are occasionally losing, so it’s very hard to say. But traditionally in the US insider trading is not about market fairness, it’s about not stealing from shareholders. So if you have no obligation to the company or it’s shareholders you aren’t an insider. The phrase is “breach of a fiduciary duty or other relationship of trust and…

But I'm pretty sure I read a case of a guy who traded on a future acquisition and was convicted on insider trading charges. He surreptitiously overheard it from his fiance, who worked for the company. Doesn't this guy not owe a company he doesn't work for a fiduciary duty....?

https://www.sec.gov/litigation/litreleases/lr-24375

The case for those wondering.

Re: Insider trade on Splunk acquisition?

#175

Post by rvz » Thu, Sep 21, 2023, 6:42 PM UTC

kypro wrote: post #120

I know this isn't what happened, but what if one day I'm waiting for the bus and I over hear a guy talking on their phone about an imminent acquisition? 1. Would that still fall under insider trading even if the information was accidentally heard, and even if I wasn't 100% sure of its accuracy? 2. If I had no clear connection to the company how would it be proven that I was trading on insider information? Surely it's…

Doesn't matter. That is still inside information and you can't trade it. Otherwise you'll end up just like this guy [0] and all the others who thought they could get away with it. Doesn't matter who.

The amount of HNers attempting to defend illegal trades like this is mind-boggling. Those in Congress should also be investigated over their suspiciously timed trades and as long as they are working in Congress, they should not be doing such trading at all.

There are no excuses for it.

[0] https://www.nbcnews.com/politics/politics-news/ex-lawmaker-c...

Re: Insider trade on Splunk acquisition?

#176

Post by function_seven » Thu, Sep 21, 2023, 6:42 PM UTC

tptacek wrote: post #143

eastdakota wrote: post #100

Earlier quoted context omitted.

Yes. The one bit you’re missing is that a call option is the right to buy a stock at a certain price typically on or before a certain date. To make the numbers simple, imagine a stock trades at $10/share. If someone came to you and said: how much would you be willing to pay to have an option to buy the stock for $100/share? The correct answer is: it depends. If it’s the right to buy the stock for $100/share at any po…

This is great, and as good a place as any for the thread to sprawl from, so I'll ask: it depends on how you know the stock is going to shoot up the next day, right? Trading on private information isn't illegal, and there's a huge variety of ways to acquire private information at varying levels of confidence, and in a sense the purpose of the markets is to aggregate everyone's private information to estimate a price.…

I love this hypothetical. It’s a kind of “triangulation” of insider info, and I have no idea what the prevailing legal theory is. But I’m willing to bet that there is a Matt Levine article that discusses a real world scenario that mirrors this…

Re: Insider trade on Splunk acquisition?

#177

Post by tfehring » Thu, Sep 21, 2023, 6:42 PM UTC

tptacek wrote: post #143

eastdakota wrote: post #100

Earlier quoted context omitted.

Yes. The one bit you’re missing is that a call option is the right to buy a stock at a certain price typically on or before a certain date. To make the numbers simple, imagine a stock trades at $10/share. If someone came to you and said: how much would you be willing to pay to have an option to buy the stock for $100/share? The correct answer is: it depends. If it’s the right to buy the stock for $100/share at any po…

This is great, and as good a place as any for the thread to sprawl from, so I'll ask: it depends on how you know the stock is going to shoot up the next day, right? Trading on private information isn't illegal, and there's a huge variety of ways to acquire private information at varying levels of confidence, and in a sense the purpose of the markets is to aggregate everyone's private information to estimate a price.…

That practice has been referred to recently as "shadow (insider) trading". It's an actively evolving area of case law, but the SEC's opinion is yes, see https://wp.nyu.edu/compliance_enforcement/2022/01/19/sec-v-p...

Or Matt Levine on the same case: https://archive.ph/5Dlmw

Re: Insider trade on Splunk acquisition?

#178

Post by mkmk » Thu, Sep 21, 2023, 6:42 PM UTC

kypro wrote: post #120

I know this isn't what happened, but what if one day I'm waiting for the bus and I over hear a guy talking on their phone about an imminent acquisition? 1. Would that still fall under insider trading even if the information was accidentally heard, and even if I wasn't 100% sure of its accuracy? 2. If I had no clear connection to the company how would it be proven that I was trading on insider information? Surely it's…

This exact scenario is well discussed here: https://www.bloomberg.com/opinion/articles/2019-03-29/deals-...

Re: Insider trade on Splunk acquisition?

#179

Post by pc86 » Thu, Sep 21, 2023, 6:45 PM UTC

mrb wrote: post #173

The screenshots demonstrate the trader purchased only $1,040 worth of options, not "$22,000" as claimed in the tweet. So the trader turned $1k into $475k. See the first photo in the tweet, the top left chart (45-day volume on the SPLK 127 C 09/22/2023 options) shows a volume of about 260 options was bought. The second photo confirms a volume of 260 (see "volume" column, first row). Options are for 100 shares. So 260…

The price of the option is per share. So a $.04 option costs $4 to purchase because it is an option to purchase 100 shares.

Re: Insider trade on Splunk acquisition?

#180

Post by bluehorizon2 » Thu, Sep 21, 2023, 6:48 PM UTC

kypro wrote: post #120

I know this isn't what happened, but what if one day I'm waiting for the bus and I over hear a guy talking on their phone about an imminent acquisition? 1. Would that still fall under insider trading even if the information was accidentally heard, and even if I wasn't 100% sure of its accuracy? 2. If I had no clear connection to the company how would it be proven that I was trading on insider information? Surely it's…

No this would not be insider trading. You have no idea if these people even work for Splunk. And they could have just been speculating.

The SEC could still sue you and turn your life upside down by investigating every aspect of your life to try to find the connection that gave you that information, but if they can’t come up with the proof then eventually you would be fine.