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Insider trade on Splunk acquisition?

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Re: Insider trade on Splunk acquisition?

#351

Post by matsemann »

jjav wrote: post #319
matsemann wrote: post #145

Earlier quoted context omitted.

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.

Well no, because there is nothing illegal about the trade itself nor the profit. What's illegal is to use insider info to make the decision to do the trade. Did the entity making this trade use insider info? We don't know. If they did not, nothing wrong with the trade. Now, the circumstances are such that this reeks of insider info. Nobody sane would have done that trade otherwise. So hopefully the SEC will investiga…

> Nobody sane would have done that trade otherwise.

But my point is that there were people on the other side more than willing to take that person's money. If "no one sane" would do that trade, why let the other side be able to profit of it until suddenly it wasn't free money? Why shouldn't the other side carry any risk?

Re: Insider trade on Splunk acquisition?

#352

Post by matsemann »

reaperman wrote: post #144
matsemann wrote: post #119

Earlier quoted context omitted.

> And strategy 2 seems especially suspicious because the risk is so high and the non-illegal reasons for doing it are so few and far between. Very few reasons you’d buy a bunch of call options that only pay off if something causes a stock to move dramatically in 24 hours. But why are they then legal to sell? It almost seems like someone wants to be able to sell them, but when they lose the bet they want to revert it.…

Sometimes its easier to trade the right to buy/sell something than to trade the thing itself. It’s less obvious with stocks because there’s a pretty streamlined system for taking delivery of the stock ownership but with physical goods or real estate sometimes actually changing ownership triggers a lot of regulatory or tax or process things. For example, with real estate if you actually buy it you’ll need at minimum t…

It wasn't really a question about options in general, but these specific options. If they are either basically free money for the seller, or suspicious trading by the buyer, why allow both sides to trade like this?

The seller is basically stealing money from a "sucker", until they suddenly aren't. No value in allowing those kind if bets, then. Where the seller either wins or claim fraud. Very one sided.

Re: Insider trade on Splunk acquisition?

#353

Post by sigwinch28 »

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?

Based on the compliance training I did this week at a hedge fund…

On the condition that you acted solely on information that was already public, or something that happened in a public place that you happened to witness as a bystander…

No, that is not usually considered insider trading.

Not a lawyer, not advice.

Re: Insider trade on Splunk acquisition?

#354

Post by harisec »

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?

You still don't know the exact date of the potential acquisition. So you cannot make a successful trade. I would say it's not insider trading.

Re: Insider trade on Splunk acquisition?

#355

Post by riffraff »

lokar wrote: post #109
riffraff wrote: post #94

Earlier quoted context omitted.

> 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.

if you develop it yourself, by definition you are doing it based on public information, so it does not apply.

Re: Insider trade on Splunk acquisition?

#356

Post by BrandoElFollito »

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…

This is an excellent answer for someone who has no idea about finances, thank you.

The only thing I would change is "perfects cold fusion" to "discovers cold fusion" :)

Re: Insider trade on Splunk acquisition?

#357

Post by BrandoElFollito »

AlbertCory wrote: post #323
maximinus_thrax wrote: post #322

Earlier quoted context omitted.

> a locked door. That's not a very efficient way to stop information leaks. It's not like ones and zeroes are delivered through open doors.. It will work against Big Bad Wolves, especially if your house is made of bricks.

No, but people can walk by your desk and see what you're working on. Or look in the conference room and see what's on the whiteboard. Not doing that would be Security Malpractice.

In an M&A you do not use the names of actual companies, but code names - exactly for that reason. There is just a very limited amount of documents that actually mention the target company (on both sides, and tt the lawyers')

Re: Insider trade on Splunk acquisition?

#358

Post by kawhah »

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…

And the 260 shares could as far as we know have been bought by several different people, correct? It's just the total volume for the day, traded in several dozen clips.

Re: Insider trade on Splunk acquisition?

#359

Post by lsaferite »

0cf8612b2e1e wrote: post #336
lsaferite wrote: post #333

Earlier quoted context omitted.

If you sold the option and don't hold the stock then you are exposed to essentially uncapped losses.

Listed scenario started by saying you own SPLK.

Correct, but this sub-section of the thread veered off into the naked options territory and I was simply trying to clear up the confusion of the person I was replying to.

Re: Insider trade on Splunk acquisition?

#360

Post by kolbe »

kawhah wrote: post #358
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…

And the 260 shares could as far as we know have been bought by several different people, correct? It's just the total volume for the day, traded in several dozen clips.

I don't have the time and sales in front of me to see the exact fact pattern, but yes, that it's a possibility. It's also possible these options were a part of a spread. That is, this trader sold other calls that lost a lot of money at the same time they bought these ones.
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