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Insider trade on Splunk acquisition?

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Re: Insider trade on Splunk acquisition?

#221

Post by kawhah »

mrjaeger wrote: post #32
zht wrote: post #29

Earlier 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.

None of the images in the tweet show either premium of $22k or 5,500 option contracts (eg options on 550,000 shares). What am I missing?

The screenshots seem to show a total traded volume for yesterday of 260 contracts (26,000 shares), way smaller than what was suggested.

Furthermore, nothing makes it clear that these were all the same person. And the open interest went down that day so at least some of this volume was buying to cover.

Re: Insider trade on Splunk acquisition?

#223

Post by matteotom »

matsemann wrote: post #145
X6S1x6Okd1st wrote: post #135

Earlier quoted context omitted.

> But why are they then legal to sell? Things are legal until there is a law or ruling that makes them illegal

It just feels like a casino, where if you win you get sent to jail. No risk for the house. No upside for the gambler.

Not necessarily - if you're a hedge fund and you think you have an algorithm that can predict gains just a tiny bit better than the call option's seller, then 99 times out of 100 you lose $x but that last 1 in 100 you might gain $x*150, and on average make money.

Re: Insider trade on Splunk acquisition?

#224

Post by fsckboy »

baq wrote: post #56
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

Fair markets are efficient markets. Regulators try to keep the markets fair and efficient. If a market is unfair, participants are scared away, which leads to more inefficiency and potentially a collapse of the market.

you are muddying two concepts. It is important that people have the perception that markets are fair, and actual fairness should be considered an important part of that.

but in terms of market efficiency, trading on inside information actually does move the market in the correct direction, toward its new market clearing price, so trading on inside information generally makes the market more efficient: if you are trading based on statistical properties of the market, "a diversified portfolio across market sectors", having the prices be corrected will give you a more balanced portfolio.

I'm not an expert on the intricacies of the regulations around acquisitions, but Cisco, big company, deciding to acquire Splunk, smaller company, is a very material fact about Splunk. Acquirers are only allowed to acquire a certain number of shares before making a public tender offer, because shareholders are entitled to know this information.

answering GPs question "who is harmed", well if you collect profits on one big trade, they came from somewhere, they came from people who traded with you without having the information you have, a trade which you enticed by making your lowball offer which only appeared like a good offer because they were in the dark. If such trades were legal, then insiders would corner the entire market for shares before any announcement was ever made.

Re: Insider trade on Splunk acquisition?

#225

Post by thisisit »

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.…

insider trade? Maybe not. Unethical? Yes. IANAL but this can be grounds for firing and potentially DataDog can sue for misusing what is effectively their confidential information.

Re: Insider trade on Splunk acquisition?

#226

Post by sakex »

ar_lan wrote: post #204
sakex wrote: post #198

Let's say you live in front of the Splunk office, and you see tens of people in suits, a limo with a CISCO sticker, as well as a lot of commotion on the office in front of you. You strongly suspect something is happening, you buy $22k of Splunk calls. Is that insider trading?

Disclaimer: not financial advice I don't think so, it happened publicly, you weren't privvy to classified details. I would go for it if I were in that scenario.

If it's legal, it means that somebody could write a model that could predict mergers pretty accurately and make a lot of money. For instance, by tracking flight patterns of C-suites executives, scanning car brands in parkings next to offices using satellite images, and analysing working hours of the staff (this can be done in multiple ways like sending e-mails to check of automated OOO responses or analysing the light coming out of the building from satellite images.)

Re: Insider trade on Splunk acquisition?

#227

Post by Retric »

bragr wrote: post #130
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…

It's still not public information (e.g. "Material Nonpublic Information"). You can't trade on it. See 17 CFR § 240.10b5-1 "Trading “on the basis of” material nonpublic information in insider trading cases", particularly section (b) "Awareness of material nonpublic information." https://www.law.cornell.edu/cfr/text/17/240.10b5-1

It becomes public information when shared with the public, unintentionally or not. The specific kinds of relationships involved are a big deal. It’s fine to tell a waitress you closed a huge deal and she can even trade on it, but tell your wife and she can’t trade stocks on that information.

“insiders must be breaching a fiduciary duty owed to their corporation when they trade on or tip confidential corporate information. This stipulation almost always means that an insider cannot trade on such information and cannot tip others about it if the insider stands to gain by doing so. https://sloanreview.mit.edu/article/when-is-it-legal-to-trad...

In the case where an unrelated outsider overhears the information that’s public disclosure. And the information no longer needs to be treated by random people as non-public.

Re: Insider trade on Splunk acquisition?

#228

Post by thumbsup-_- »

These are so easy to track and find out. Whoever did this, either doesn't knows about insider trading laws or is stupid enough to think they can outsmart SEC. SEC would make a good example of this person, whoever they are.

Wouldn't be surprised if this is done by a sibling or an uncle in another country.

Re: Insider trade on Splunk acquisition?

#229

Post by thumbsup-_- »

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…

Remember the case of coinbase PM who had his brother in India buy crypto before coinbase added them to their platform for trading? It was insider trading because insider gave the tip. PM's brother had no connection to the company directly.

Re: Insider trade on Splunk acquisition?

#230

Post by fsckboy »

baq wrote: post #218
zeroonetwothree wrote: post #206

Earlier quoted context omitted.

Insider trading also makes markets more efficient. So I don’t think your argument is as strong as you think. I also think it’s weird we don’t apply this consistently. I can buy many assets with “non public information”, just not those the SEC regulates. So it’s not really about markets at all, but specifically about fairness for shareholders (or something by like that?)

It is by definition not efficient because some participants have more information available to them than others.

the "secret" about the pending acquisition is what makes the market inefficient. Trading based on the secret information does integrate that asymmetric information into the price creating better price efficiency.
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