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Insider trade on Splunk acquisition?
- silversub 3y agoInsider trading or a time traveler who is new at this.
- dannylandau 3y agoAppears pretty obvious! Hard to believe they will be able to keep the profits.
- fdhfdjkfhdkj 3y ago[dead]
- YeBanKo 3y agoIs there any legit way in which whoever made this trade could have got a wind of a potential acquisition without relying on inside knowledge?
- arcticbull 3y agoKnowing about the acquisition puts you in possession of material nonpublic information. It's unlawful to trade on the basis of such information whether you work at the company or not. Passing it along is 'tipping' and acting on it is still 'insider trading.'
- kylecordes 3y agoI am far from an expert - but think this is essentially true - but does not universally imply you can't trade on the info. Example: You watch the front door of an office building. From seeing who walks in, you ascertain with 99% probability that companies X and Y are working on some kind of big deal. If you're just a random person with no relationship to those companies, you can trade on this information. (Not legal advice! Don't do this unless you are sure it is OK! Which I am not!)
- deleted 3y ago[deleted]
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- jumhyn 3y agoRight, the SEC’s guidance[1] on this specifies that merely trading on MNPI alone is not enough: > Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security. If you have no fiduciary duty or other relationship of trust and confidence, it’s not insider trading. So to my understanding, if you, say, overheard two execs chatting about this in an airport lounge you’d be free to trade on it. Note: this only applies to the US! Different countries may define things differently. [1]: https://www.investor.gov/introduction-investing/investing-basics/glossary/insider-trading https://www.investor.gov/introduction-investing/investing-ba...
- kortilla 3y agoNo, it’s essentially false. The crime is not trading on something the public doesn’t know. It’s breaching the trust for information given to you in confidence. It’s completely different despite looking similar on the outcome.
- function_seven 3y agoMy understanding is that having material nonpublic information is not—in itself—enough to make a trade illegal. As long as you're a true outsider, and didn't get that info using illegal means, you can trade on it. Maybe this whale was tracking tail numbers, drove down to the executive airport, and saw that Cisco's chief M&A guy had a huge grin on his face as he stepped onto the plane. (Okay, I doubt that highly, but it is a scenario)
- jldugger 3y agoCisco and Splunk are both HQ'd in SF. If they were at the airport, it was coming back from Jackson hole or something. The real trouble with 'maybe they were legit outsiders' is the options expired specifically today, which means you need to know _when the announcement_ is to profit.
- yellowstuff 3y agoI strongly suspect these trades are not legit. That said, the trader didn't necessarily KNOW that the deal would be announced today. Trading is a game of probabilities. It's possible that the trader used public information to figure out that Splunk could be acquired soon and there was a small but non-zero chance it would be announced today. In that case taking a $22k flyer on cheap options is a good risk-adjusted bet for a well-capitalized investor. (Although they'd have to factor in that this WILL result in a visit from the SEC, which is probably not fun even if you've done nothing wrong.)
- mattnewton 3y agoYeah, I don’t know, an investor sophisticated enough to predict that without insider information, I would have to hope that they would also be sophisticated enough to make the trade less blatantly obvious as a big bundle on 1 day expiration otm call options.
- yttribium 3y agoSPLK option expiration dates are weekly out to 6 weeks.
- kortilla 3y agoNo, your intuition is wrong here. Otherwise you couldn’t do private research. This definition varies and is true maybe in some European countries(???) but not the US.
- sokoloff 3y agoThere's a third element of insider trading: "in breach of a fiduciary duty or other relationship of trust and confidence" 0 - https://www.investor.gov/introduction-investing/investing-basics/glossary/insider-trading https://www.investor.gov/introduction-investing/investing-ba...
- cush 3y agoIs it insider trading if the information is leaked publicly, like on Twitter?
- fsckboy 3y ago>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 that didn't pay off, leading to average returns, then that's a strong case that this was random.
- lolinder 3y ago> 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.
- fsckboy 3y agoit'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.
- kortilla 3y agoNo, it’s not the birthday paradox. This was a bet that expired nearly immediately after it was placed. This wasn’t someone who decided “I’ll invest in splunk today”. It was “I’ll bet that splunk stock appreciates significantly by the end of the week, far outside it’s normal variance, else I lose everything I bet.”
- TuringNYC 3y ago>> 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? Yes, people try to follow private plane transponders of bankers and corp executives to/from corporate headquarters. This is harder for 2 SV companies, it isnt like the plane is flying to some rural HQ. IANAL, but I'd guess that betting on an acquisition based on public data about private plane routes would make this trade legal IFF that happened.
- jkubicek 3y agoObviously I don't condone insider trading, but it's nice to see someone go all in and make some real money. If you're going to risk jail time, you might as well do it for life-changing amounts of cash. Contrast this with Stephen Buyer who's going to trial and may well end up in jail for a piddly few $100k.
- sokoloff 3y agoI expect this trade will indeed change the trajectory of their life.
- function_seven 3y agoI would like to buy a Reverse Iron Butterfly on the trajectory of this trader's life.
- yumraj 3y agoAs in go to jail? I’m pretty sure yes.
- throaway920181 3y agoYou must be new to the United States. Only the poors go to jail (except in the most extreme cases like Epstein, and it still took them 20+ years to do anything to him.
- quandrum 3y agoJust note it is most likely the person who did this was poor compared to whoever was on the other side of this trade.
- deleted 3y ago[deleted]
- boeingUH60 3y agoWow, I guess SBF is a pauper then.
- scarmig 3y agoGo directly to jail, do not pass go, do not collect $10M.
- swarnie 3y ago[flagged]
- yellowstuff 3y agoThe SEC absolutely will be looking into this trade.
- swarnie 3y ago[flagged]
- booi 3y agodidn't they send martha stewart to jail?
- yellowstuff 3y agoTechnically her jail sentence was for lying about her insider trading, not for the original crime.
- SkipperCat 3y agoMartha went to jail for lying to the Feds. If she just told the truth, she would have probably gotten no more than a wrist slap.
- yellowstuff 3y agoSearch for "insider trading convictions". They're not rare, and often result in jail time. Are most of the inside traders that get caught non-professional investors, because the pros know how to escape detection? Are the convictions a small fraction of the number of crimes? Is the SEC too focused on crimes that are easy to prosecute and ignoring more important systemic issues? I'd say yes to all, but the SEC is far from toothless in this type of case.
- xyzelement 3y agoI 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?)
- trowawee 3y ago"short-dated out-of-the-money call options that cash out a day after a merger/acquisition" is, like, the definition of a suspicious transaction. Somebody's gonna get a knock on the door from the SEC.
- mcast 3y agoMaybe unless that person was a US senator/congressperson.
- mandevil 3y agoThis is false. Then-sitting Congressman Chris Collins (R-NY) pled guilty and was sentenced to 26 months in prison for insider-trading back in 2019-2020. He was pardoned by President Donald Trump as one of his last official acts as President, but Collins still spent 10 weeks in prison for insider-trading as a sitting congressman (this was for knowledge he gained outside of his duties as a congressman, it was knowledge he got as a member of the Board of a company). Congresspersons separately aren't allowed to trade on things they learn from their job- that was banned in 2012 under the STOCK act.
- dmoy 3y agoBanned, but not enforced, and due to the 2013 removal of electronic disclosure requirements, harder to detect? https://campaignlegal.org/update/part-2-stock-act-failed-effort-stop-insider-trading-congress https://campaignlegal.org/update/part-2-stock-act-failed-eff...
- mrjaeger 3y agoBroke Rule #2 of Matt Levine's "Laws of Insider Trading": "Don’t do it by buying short-dated out-of-the-money call options on merger targets."
- scarmig 3y agohttps://www.bloomberg.com/opinion/newsletters/2018-07-25/money-stuff-don-t-eat-the-poison-pill-by-mistake https://www.bloomberg.com/opinion/newsletters/2018-07-25/mon...
- seatac76 3y agoCame to post just that. Great read!
- littlekey 3y agoBroke Rule #1 too, it seems :).
- bredren 3y agohttps://archive.ph/2023.04.04-175508/https://www.bloomberg.com/opinion/articles/2018-08-12/the-10-laws-of-insider-trading https://archive.ph/2023.04.04-175508/https://www.bloomberg.c...
- deleted 3y ago[deleted]
- breakds 3y agoNot defending anyone, just saying. - If I have $1000 I might choose to spend $2 for a gambling. - If the trader have $10M already, it might be reasonable for him/her to spend $20k gambling on some rumors. This guy could be someone who is already rich.
- 0xB31B1B 3y agoThere is a 0% chance this is someone gambling. This is a 1000000 sigma event.
- fsckboy 3y agomany people gamble in many options continuously all the time. did trades like this occur in the market for Splunk every day? did this trade significantly affect the price or volume in Splunk options? If it's part of a very common pattern of random trading, then the unusual thing is the acquisition, and not the trade. And a suspicious trade itself is not enough evidence, there needs to be evidence of an inside information conduit to make the case. I'm not take sides on the suspiciousness of the trade, I'm pointing out what the language of the evidence should look like to raise suspicion.
- zeroonetwothree 3y agoReally? 0%? That seems unjustifiably confident.
- ankit70 3y agoMaybe it was just one leg of an option spread. Selling ATM/Slightly OTM call and hedged with buying deep OTM.
- powera 3y agoIf 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.
- AlexandrB 3y agoI think the suspicious thing is that these were bought right before the announcement of the acquisition. If they had bough the options at any other time and made money it would not be notable.
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- FredPret 3y agoThe law requires not ignorant people, but equally ignorant people. This extremely well-timed trade is just an indication that the trader may not be equally as ignorant as the rest of us.
- thebears5454 3y agoOptions reduce volatility, and provide for a more efficient economy/market
- ryeights 3y agoWhat’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…
- bryan0 3y agoCan 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?
- thathndude 3y agoNo explanation needed. You got it. An options contract gives you the right to buy or sell a security to a counterparty at a fixed price at any time on or before the expiration date. As you note, the chances of being able to buy a share from someone on or before Friday for $127 (when the stock was publicly trading below that) was near valueless ($.04). Not anymore!
- paws 3y agoCould you please explain more about who these counterparties are exactly? Do they include brokerages? I'm trying to understand why a counterparty would enter into an arrangement where a stock price change obligates them to financial liability like this. Presumably there's some upside if the stock price goes the other way, but it's unclear who the $ would come from in that case. Also: Who originates options? When someone buys an option, is it the brokerage who collects the fees? Is the counterparty already involved at that point?
- wallawe 3y agoLet's say I own a bunch of SPLK and want to make some passive income. I am the counterparty to the call purchaser in this example. I can sell call options 10% out of the money each week and make some nice cash. If my plan was to hold the stock long term, there's no downside risk because if the stock goes down, I get to keep the cash (premium) from selling the calls. If it goes sideways or slightly up I get to keep it as well. The only "downside" is it goes up >10% in which case i've made that 10% + premium, but I've now had my stock taken away from me. In this case, I lose out on an additional 10% in upside because it went up 20% overnight.
- lacoolj 3y agoLet'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
- jmoss20 3y agoWhoever sold them those call options, at the very least.
- deleted 3y ago[deleted]
- phpnode 3y agoIf you were the other side of that trade then you’re the victim. For everyone else it erodes trust in the market
- baq 3y agoFair 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.
- zeroonetwothree 3y agoInsider 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?)
- baq 3y agoIt is by definition not efficient because some participants have more information available to them than others.
- throw03172019 3y agoDo they keep the money if they get caught? If it’s the SEC, they directly can’t send someone to jail, only fine them? Is that right?
- ryanSrich 3y agoWhere'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?
- meindnoch 3y ago>Is that considered insider trading? Yes.
- ryanSrich 3y agoLegally speaking then, it's best to never make trades on any company that you currently or have previously (because you could still have friends that work there) worked for?
- WJW 3y agoIf you are in the USA, rule 10b5-1 of the SEC [1] "allows insiders of publicly-traded corporations to set up a trading plan for selling stocks they own". Despite the description in the link, as I understand it you can also buy more stock as long as you announce it well in advance. It is explicitly meant to allow people who cannot avoid having non-public information about a stock to still trade in that stock. By forcing them to publicly announce well in advance what they intend to trade and when, the idea is that they then cannot do the short term high risk trading that you need to really profit from insider trading. https://www.investopedia.com/terms/r/rule-10b5-1.asp https://www.investopedia.com/terms/r/rule-10b5-1.asp
- IKantRead 3y agoHave you never worked for a publicly traded company where part of your compensation is in RSUs? You are only able to trade share's during specific windows of time typically 1 week after earnings are released. Additionally virtually every company I've known has explicit policies stating that you cannot buy/sell any derivatives related to the company stock (which is a shame since buying put options is a legitimate way to insure your compensation). Further more, even these rules are only this lax for non-executive or other high level employees. If you're higher up in the company you have much more access to non-public material information. The solution to this is usually to set up a 10b5-1 that automatically liquidates shares based on a schedule approved by the board. In regards to the "previously" question. I wouldn't worry about legitimate trades, but if you are trading based on insider information and looking to gain a lot of money, then trading would, by definition, be "insider trading"
- overcast 3y agoThere is barely any open interest on any of the strikes. 127C specifically is only 420OI. 126C is 872OI, 125C is 778OI.
- AlbertCory 3y agoIn the Google Legal building, the department that dealt with acquisitions was behind a locked door. Most badges did not open it.
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- menthe 3y agoWhat’s the relationship between Google, Cisco and Splunk?
- AlbertCory 3y agoinsider info on mergers. Control of info on M&A is a constant worry for any corporation. And anyone who works in it has to get the lecture from Legal about how you cannot profit from it, so don't try.
- moffkalast 3y ago74th rule of acquisitions: Knowledge equals profit.
- maximinus_thrax 3y ago> 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.
- AlbertCory 3y agoNo, 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.
- kypro 3y agoI 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 not enough just to say the trade was statistically unlikely, or is it?
- euos 3y agoBurden of proof would be on FCC.
- bragr 3y agoIt'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 https://www.law.cornell.edu/cfr/text/17/240.10b5-1
- yieldcrv 3y agodisagree, the SEC has lost a lot of cases on this idea if you’re not affiliated with the company and simply overhear and trade, make enough to retain a lawyer real quick
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- not2b 3y agoI suspect that the SEC will look at this one, because it looks extremely suspicious. But whether they can bring a case or not depends on the details: did the trader know about the acquisition and how did they get that info? Was an employee of either of the companies involved?
- mrb 3y agoThe 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.)
- pc86 3y agoThe price of the option is per share. So a $.04 option costs $4 to purchase because it is an option to purchase 100 shares.
- mrb 3y agoOh right! I edited my math. Thanks :)
- kolbe 3y agoThis is correct. I can independently verify that there are a total of 420 contracts of open interest, and this tweet is fake news.
- mrb 3y agoThank you. I am shocked everyone blindly trusts the "$22,000" amount without actually reading the screenshots.
- kawhah 3y agoAnd 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.
- kolbe 3y agoI 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.
- sakex 3y agoLet'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?
- ar_lan 3y agoDisclaimer: 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.
- sakex 3y agoIf 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.)
- ar_lan 3y agoI think some analysts have been doing flight analysis for a long time to help inform trades. Everything you listed is publicly accessible knowledge (there is an interesting conversation over the fact that a poor person is unlikely to have the available means to attain this information) and I think should be fair game. But I really have not done the legal research to confidently give you a “Yes” and willfully will exit so I don’t get some SEC agent knocking on my door.
- JumpCrisscross 3y ago> by tracking flight patterns of C-suites executives, scanning car brands in parkings next to offices using satellite images This was old enough to be the stuff of office legends fifteen years ago. (Also, flying drones to thermally image petroleum tankers to infer their levels.)
- DelaneyM 3y agoAn accounting professor I once had called trades like this “speed dialing the SEC from your Bloomberg”. Even if it’s legit, this trader is going to be spending a lot of time giving depositions over the next few months.
- eastdakota 3y agoYup.
- dmingod666 3y agoMaybe it was just a member of Congress and thus no crime was committed
- thumbsup-_- 3y agoThese 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.
- jiveturkey 3y agoOr, it's not insider trading but rather someone that observed a parking lot, that kind of research activity.
- replwoacause 3y agoI’d like to know who is watching parking lots and spending 22k on a hunch
- jiveturkey 3y agoyou mean, spending so little right? if they were wrong, the most likely outcome is they would have ended up roughly even.
- tqi 3y agoWho is selling these options?? Talk about picking up pennies in front of a steamroller...
- fourg 3y agoThe market makers which are basically big financial institutions make up the majority, but anyone could sell these if they wanted. Big money will sell options like these and then hedge the position by buying calls to stay neutral. Their goal is to profit off implied volatility which causes options to lose value over time until they eventually expire worthless.
- steveBK123 3y agoMight take a year or two, but someone is going to prison lol.
- ilyt 3y agoRemember kids, you need to be rich enough first to get away with insider trading...
- say_it_as_it_is 3y agowhat we aren't seeing is trader/algo taking the same style of trade against dozens of other names, daily, for the last 12 months
- BonoboIO 3y agoWould I be able to see such a trade when the trader makes them and just copy the trade with a small amount. Thinking is: „Who the hell would make such a trade if he doesn’t have some information, let’s do the same“
- gituliar 3y agoCan anyone confirm this unusual volume (to ensure this is not a clickbait) ? The option chain I have shows regular volume, with open interest to be ~420 contracts.
- amai 3y agoStraight to jail https://youtu.be/eiyfwZVAzGw https://youtu.be/eiyfwZVAzGw
- kajumix 3y agoWouldn't this be simpler if everyone was an insider? A public company releases a significant amount of internal financial and operational information every quarter. What if it was real time? Live stream everything from the boardroom.
- KETpXDDzR 3y agoMy neighbor works for Spunk and asked me on Sept 10th if I can refer him. I guess some people knew something like this is happening soon. Background: He's full remote and Cisco is known for being against that.
- peterbecich 3y agoI'm full remote at Meraki and they've been very supportive of remote.