So it was likely a short collar? Isn't that a pretty normal hedging strategy for those long the underlying? In which case, why did you say it was almost certainly insider trading?
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MDVN - Options Insider Makes $40 Million in One Minute.
- Thread starter livevol_ophir
- Start date
So it was likely a short collar? Isn't that a pretty normal hedging strategy for those long the underlying? In which case, why did you say it was almost certainly insider trading?
Quote from xflat2186:
Sorry but there is no "usual" way to hedge and the stock holder can choose to do it anyway they like. I am equally as sure that order was shopped upstairs long before it hit the tape.
Exactly. Who says this was done as a last minute market order? It's naive to assume that, given the size of the trade.
Also, what kind of self-respecting crook would make an insider trade SO OBVIOUS that even the tin foil hat brigade pick up on it like flies to shit? It was guaranteed that a trade like this would be looked at - therefore it is either the most incompetent insider trader known to man, or it was a legitimate trade, probably a hedge to someone long millions of dollars worth of stock who didn't fancy flipping a coin on some drug-test results, or possibly just a speculation, taking advantage of the pumped vol. IMO the odds of it being a legit trade are >50%, just because I find it hard to believe that in the post-Madoff, post-crash era, a fraudster would be so dumb as to think they could get away with something so obvious and blatant.
Quote from livevol_ophir:
Even if this person was long stock and got out - if they had this info, that's still an SEC violation. The SEC bans unfair gains AND unfair avoidance of loss.
Wrong - insider trading is not defined as "unfair gains and unfair avoidance of loss". It's a much more strict definition than that.
livevol_ophir
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Quote from Ghost of Cutten:
Why can't it be legit? Surely someone who is long a boatload of stock before an important drug announcement has an obvious reason to hedge their stock with options.
(a) Based on Yahoo! Finance:
Largest direct shareholder is David Hung - 1.4 million shares.
Largest institution is Barclays - 1.8 million shares (not mutual fund).
This was for 2.6 million shares. Even if someone had options that don't appear on insider rosters (which is possible), 2.6 million would be enormous relative to the numbers above. It's not gonna be just a "hedge".
It's gonna be someone with unique knowledge about the company.
(b) A hedge is not a position flip. This is a position <u>close</u>, NOT a hedge. It's ~100 delta with calls and puts.
The SEC treats avoidance of loss and speculative gain as the same if they use inside information.