5 ms·

Yea, now just imagine how many smarter people are doing it and getting away with it

kasey_junk 5y ago
Not many? Describe the trade steps necessary to insider trade with high leverage that isn’t trivial for a data analytics program to flag with high confidence?
- extr 5y ago
  I don't find it hard to imagine. 1. Work for a company that provides signal-giving infrastructure for a variety of companies across disparate industries. Twilio is actually a perfect example. 2. Find someone to work with that already has or is willing to build a plausible history of so-so trades. 3. Occasionally tip this person off that company Y in industry X is about to have a good quarter. Never trade the same company twice. Parallel construct a plausible rationale for the trade based on public market signals if you want to sleep well at night. 4. Don't communicate over easily subpoenaed channels, obviously. The SEC isn't the NSA, basic OPSEC is fine. 5. Profit? That's why I'm so disappointed by the OP! It's so easy to dream up a situation where they used their access in an effectively untraceable way.
  - kasey_junk 5y ago
    That provides extremely low edge for both parties involved. Your participant with a history of trades could just as easily do research using public information (company press release aggregation is a classic version) to get similar edge without entering a criminal conspiracy. Notice I mention high leverage. There are 2 challenges (as I see it) to committing insider trading. The first is having information ahead of time that actually predicts how the market will move based on the information. It’s not enough to know a company will have a good quarter you need to know it will be better than expected. Second you need to be able to make outsized returns on that information. You have to beat the market returns by themselves. This compounds with the other issue above. The less obviously market moving data you have the more leverage you need. This narrows the search space pretty considerably for an analytics based approach. You look at insiders with lots of access or anyone making high leverage bets. Finally, do a mental exercise on your step 2. What does that even look like? An insider randomly approaching hedge funds? A random encounter at a bar? A frat reunion where they share each other’s trading history like term papers?
    - extr 5y ago
      I guess I'm imagining more of a situation where you are working with someone (or yourself) that already has a sophisticated understanding of the market's expectations, and you wait for opportunities where your inside info is not priced in well. Eg, a delivery app is expected to have another strong quarter of growth, but your data says that growth has stalled. However if I'm reading your point correctly, you're saying this is harder than it sounds. If you already have a "sophisticated" understanding of the market enough to make this work with low edge, why bother with a criminal conspiracy. And to make outsized returns, you need to use lots of leverage, in which case you're taking on more risk of exposure.
  - refurb 5y ago
    How do you get the profit into your hands? Cash? Bitcoin? Will this other person keep their mouth shut when the SEC comes knocking because some very successful traders seems to be handling a lot of cash or crypto? Or will they flip on you to stay out of prison? Read up on Matt Levine's many, many examples of people getting busted for insider trading.
    - extr 5y ago
      Not sure how a random user of /r/WSB who has been receiving anonymous insider tips in return for 50% of the gains, to be paid in untraceable crypto, is going to "flip" :D
      - refurb 5y ago
        Crypto is not untraceable. Crypto is useless unless converted into cash which requires identifying yourself. Said WSBer could just take your tips and keep all the money.
        extr 5y ago
        Very true. I find it to be a fun thought exercise though. Kind of like asking your friends around the dinner table how they would rob a bank.
- 55555 5y ago
  1. Find out using inside information that Twilio is having a good quarter due to macro conditions 2. Buy deep OTM call options in… a similar company that’s in the same business as Twilio 3. Never get in any trouble
  - kasey_junk 5y ago
    It’s literally a running gag on Matt Levite’s newsletter that all the SEC needs to do to keep their enforcement quota up is to search their database for any deep OTM option trades around earnings announcements.
    - jliptzin 5y ago
      If that’s the case couldn’t anyone just scan for suspicious trades like that and copy the position?
      - kasey_junk 5y ago
        Yes if they have the SEC database of trades?
  - Bedon292 5y ago
    But that's not insider trading. You don't have inside information on that other company. You have a guess that their business is doing similar. When perhaps Twilio is doing so well because they took business from that competitor or something else that makes them stand out.
    - willdearden 5y ago
      https://www.sec.gov/news/press-release/2021-155 https://www.sec.gov/news/press-release/2021-155 You absolutely can get charged for trading in a similar company.
      - extr 5y ago
        This is another situation where I am literally dumbfounded at the actions of the indicted. How are you smart enough to know what options are and how to buy them but stupid enough to think that you won't get caught making such a blatant trade? It's like these people think they're the first ones to ever come up with the idea of trading on privileged information so there's no way they'll get caught.

Not many? Describe the trade steps necessary to insider trade with high leverage that isn’t trivial for a data analytics program to flag with high confidence?

extr 5y ago
I don't find it hard to imagine. 1. Work for a company that provides signal-giving infrastructure for a variety of companies across disparate industries. Twilio is actually a perfect example. 2. Find someone to work with that already has or is willing to build a plausible history of so-so trades. 3. Occasionally tip this person off that company Y in industry X is about to have a good quarter. Never trade the same company twice. Parallel construct a plausible rationale for the trade based on public market signals if you want to sleep well at night. 4. Don't communicate over easily subpoenaed channels, obviously. The SEC isn't the NSA, basic OPSEC is fine. 5. Profit? That's why I'm so disappointed by the OP! It's so easy to dream up a situation where they used their access in an effectively untraceable way.
- kasey_junk 5y ago
  That provides extremely low edge for both parties involved. Your participant with a history of trades could just as easily do research using public information (company press release aggregation is a classic version) to get similar edge without entering a criminal conspiracy. Notice I mention high leverage. There are 2 challenges (as I see it) to committing insider trading. The first is having information ahead of time that actually predicts how the market will move based on the information. It’s not enough to know a company will have a good quarter you need to know it will be better than expected. Second you need to be able to make outsized returns on that information. You have to beat the market returns by themselves. This compounds with the other issue above. The less obviously market moving data you have the more leverage you need. This narrows the search space pretty considerably for an analytics based approach. You look at insiders with lots of access or anyone making high leverage bets. Finally, do a mental exercise on your step 2. What does that even look like? An insider randomly approaching hedge funds? A random encounter at a bar? A frat reunion where they share each other’s trading history like term papers?
  - extr 5y ago
    I guess I'm imagining more of a situation where you are working with someone (or yourself) that already has a sophisticated understanding of the market's expectations, and you wait for opportunities where your inside info is not priced in well. Eg, a delivery app is expected to have another strong quarter of growth, but your data says that growth has stalled. However if I'm reading your point correctly, you're saying this is harder than it sounds. If you already have a "sophisticated" understanding of the market enough to make this work with low edge, why bother with a criminal conspiracy. And to make outsized returns, you need to use lots of leverage, in which case you're taking on more risk of exposure.
- refurb 5y ago
  How do you get the profit into your hands? Cash? Bitcoin? Will this other person keep their mouth shut when the SEC comes knocking because some very successful traders seems to be handling a lot of cash or crypto? Or will they flip on you to stay out of prison? Read up on Matt Levine's many, many examples of people getting busted for insider trading.
  - extr 5y ago
    Not sure how a random user of /r/WSB who has been receiving anonymous insider tips in return for 50% of the gains, to be paid in untraceable crypto, is going to "flip" :D
    - refurb 5y ago
      Crypto is not untraceable. Crypto is useless unless converted into cash which requires identifying yourself. Said WSBer could just take your tips and keep all the money.
      - extr 5y ago
        Very true. I find it to be a fun thought exercise though. Kind of like asking your friends around the dinner table how they would rob a bank.
55555 5y ago
1. Find out using inside information that Twilio is having a good quarter due to macro conditions 2. Buy deep OTM call options in… a similar company that’s in the same business as Twilio 3. Never get in any trouble
- kasey_junk 5y ago
  It’s literally a running gag on Matt Levite’s newsletter that all the SEC needs to do to keep their enforcement quota up is to search their database for any deep OTM option trades around earnings announcements.
  - jliptzin 5y ago
    If that’s the case couldn’t anyone just scan for suspicious trades like that and copy the position?
    - kasey_junk 5y ago
      Yes if they have the SEC database of trades?
- Bedon292 5y ago
  But that's not insider trading. You don't have inside information on that other company. You have a guess that their business is doing similar. When perhaps Twilio is doing so well because they took business from that competitor or something else that makes them stand out.
  - willdearden 5y ago
    https://www.sec.gov/news/press-release/2021-155 https://www.sec.gov/news/press-release/2021-155 You absolutely can get charged for trading in a similar company.
    - extr 5y ago
      This is another situation where I am literally dumbfounded at the actions of the indicted. How are you smart enough to know what options are and how to buy them but stupid enough to think that you won't get caught making such a blatant trade? It's like these people think they're the first ones to ever come up with the idea of trading on privileged information so there's no way they'll get caught.