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From an outsider perspective, it looks hard to label this as anything but insider trading. Is that the wrong take?
by onei 3y ago
From an outsider perspective, it looks hard to label this as anything but insider trading. Is that the wrong take?
- patrikmansuri 3y agoThat's exactly what it looks like
- secfirstmd 3y agoPossibly. I guess you can't remove the idea that the information was found through some open means. For all we know the private jets of the Cisco leaders might have been in the same location as those from Splunk.
- aodin 3y agoThey bought 1-day options, so they knew the timing of the announcement.
- secfirstmd 3y agoYeah true. Pretty hard to figure out that accurately from open sources.
- fatnoah 3y agoI don't have the knowledge or the patience to find out, but it would be interesting see the overall pattern of 1 day calls on Splunk stock to see if this was an outlier.
- noselasd 3y agoDid anyone do the same the two days ago? (but just did't make any money yesterday ?). What about 100 days ago ? And so on. It is certainly no secret that Cisco wanted to buy Splunk for $20BN in Februart 2022
- arcticbull 3y agoSounds like something one of the very special folks on WallStreetBets would have done on the basis of half-baked "dd."
- ineedasername 3y agoWhat’s dd?
- giantg2 3y agoDue dilligence. Or in the case of wallstreetbets, the illusion of it.
- johnvanommen 3y agoIf the buyer works for Cisco or Splunk, they're going to have a bad time
- mekster 3y agoIf the buyer was told buy an insider, that still blows.
- Sebguer 3y agoMatt Levine's money stuff offered the hypothesis that it could just be normal gambling. But, it's almost definitely insider trading, and either way, someone will definitely be getting an SEC visit.
- posnet 3y agoThey also directly broke Levine's second rule of insider trading. 2. Don’t do it by buying short-dated out-of-the-money call options on merger targets [0] [0]: lawsofinsidertrading.com
- xmcqdpt2 3y agoYeah I would have thought they should have bought Datadog stock instead... but actually DDOG is down. I'd make a poor trader.
- technovangelist 3y agoCisco offered to buy ddog the night before the ipo. Thankfully ddog said no.
- spopejoy 3y agoWhich every time he invoked said law, he also backs off and says it's probably gambling or automated hedging, or in the original case, a failed "broken wing iron condor straddle" going the opposite direction
- roozbeh18 3y agoEasy for sec to identify affiliation to Splunk for this call.
- kabes 3y agoWhat's the chance the sec will go after this? I guess they don't have the capacity to go after all these cases, even the clear cut ones
- jmvoodoo 3y agoThey'll investigate this. It's an easy target.
- positr0n 3y agoI think the SEC loves cut and dry cases like this. You see enforcement actions all the time about similar situations. Usually some VP of one of the two companies is behind it and they amateurishly try to cover their trails by getting their brother to do the trade, or using their mother-in-law's account, etc. IMO though it could easily be just some WSB bro that gambled and got lucky. Robinhood and other platforms make it easy to trade short dated options these days and people love to gamble on them.
- blitzar 3y ago> What's the chance the sec will go after this? 100%
- xmcqdpt2 3y agoThe SEC is 100% on the case right now. They catch people all the time doing much smaller version of this.
- theogravity 3y agoThe not-insider-trading possibility: It's possible someone was selling contracts as a hedge since the tech market has been really bad this week. A market maker was obligated to buy the contracts. The person selling the contracts gets $22k in premium, and misses out on the pop. The market maker will absolutely exercise the contracts and profit. (This is coming from someone who sold APPL calls expiring tomorrow for .08 at a high strike today) Personal opinion: It's insider trading. You'd need a ton of shares to be able to sell $22k worth of contracts at a high strike unless you're doing naked options selling.
- qeternity 3y agoThis is not quite how things work. Market makers don’t just take risk and not hedge. They would have hedged deltas (by shorting stock) and gamma/vega by selling other stuff (or this offset stuff they had sold previously). Impossible to say whether an MM would have made or lost money but usually gap moves like this cost MM on a net basis.
- theogravity 3y agoYou're right, and it's something I should have mentioned.
- hyeomans 3y agoI understood nothing of what you said, what is a good resource/starting point to understand the meaning of this?
- theogravity 3y agohttps://www.investopedia.com/terms/o/optionscontract.asp https://www.investopedia.com/terms/o/optionscontract.asp In terms of how the market maker is involved: https://www.projectfinance.com/options-market-maker/ https://www.projectfinance.com/options-market-maker/ hedging: https://www.projectfinance.com/what-is-delta-hedging/ https://www.projectfinance.com/what-is-delta-hedging/
- tempaccount420 3y ago
- bradleyjg 3y agoNot that I recommend you try this, but my understanding is that if a careless splunk executive were talking about the merger on the phone at the local coffee shop and you, a total stranger, happened to overhear you could trade on that without it being a crime.
- toochtooch 3y agoCisco and Splunk merger/acquisition rumors are at least 1 year old. Lots of Splunk employees speculated that it would be announced at the last Splunk conf (2022). Either way I vote for this being a blatant insider trading.
- windexh8er 3y agoI was working for a startup that was acquired by Splunk in 2018. At the next Cisco Live that was all the talk/rumor: Cisco acquiring Splunk. At one point it sounded like Cisco attempted a somewhat hostile takeover of Splunk. My sources and I rehashed this last week and the initial bid for Splunk was $23B sometime between 2018-2020. At the current price it's hard to tell if the current offer is higher, or actually lower, given inflation and market movement/sentiment. Either way, it's a bad deal for both Splunk employees and their customers. SIEM is a space that is hard to be a leader in when you're not vendor agnostic. This is basically what XDR has become: vendors who have EDR/NDR/whatever are claiming to have some unique (it's not) data lake that can ingest any source, when in reality all of these solutions suck at everything outside of their own product set. I've worked with countless clients over the last year who, as an example, made the mistake of thinking Microsoft Sentinel was a cost effective tool, only to realize that once you're outside of the Microsoft ecosystem analytics/detections quality becomes very close to zero in terms of quality and the price is not cost effective. But SIEM has always had a flair of vendor lock in to it anyway. It's a hard platform to move from once time has been invested in wrangling all the data sources for ingest, transforming them to some bespoke schema and then all of the detection engineering on top of that. It's almost as bad as large scale firewall migrations. What a lot of folks don't know is that when Splunk decided to move to a Cloud/SaaS model they literally just lifted and shifted the unoptimized bits of on-prem Splunk to a managed VPC under the direction of then-CTO Tim Tully. Splunk was losing money on every deal due to the infra outcosting the insanely high quotes Splunk was churning out. This is a great case study on Innovators Dilemma as Splunk drug their feet for years internally saying that cloud would never impact them. And then they realized they were far behind the 8-ball and decided to hemorrhage cash so as to not churn customers. They eventually optimized it, but the underpinnings still aren't what a fresh take on the bits would have looked like had Splunk done the "right" thing. Cisco will continue to play ELA games with customers just like VMware. For those who don't know both companies like to get customers into ELAs. Why? Because those contracts basically state that said customer will buy X number of new products annually or risk losing some, or all, of their currently negotiated discount. For smaller orgs this works less well, but you'd be amazed at how those smaller are easily manipulated by snake oil sales folks. For large orgs this puts them in a bind. I've even seen shady contracts written (from Splunk) that had language wherein if the customer does not renegotiate or cancel a, let's say, 3 year contract in writing 90 days before it's going to expire that the contract will autorenew at a ridiculous percentage increase in cost. Move away from these enterprise product sets where and when you can. These companies are focused on the bottom line - and that is profit, not the customer. The industry has it all backwards, and it's working for them... Still.
- cosgrove 3y agor/WallStreetBets folks do this type of thing all the time... wouldn't be surprised if it was someone gambling.