What can I do about insider trading activity in stock options that cause financial harm?

joezapp · Apr 18, 2016

Last Thursday there was some curious buying in an out-of-the-money put option expiring next day, especially in the late afternoon. This was all explained upon a pre-announcement by the company later that evening of a very bad earnings quarter. The option gained 3300% overnight. I'm one of many harmed by selling those illegally profitable contracts to those who were privy that very bad company news was forthcoming that evening. It's said that "A person is liable of insider trading when he or she has acted on privileged knowledge in the attempt to make a profit." It's also said that it is illegal because "insider trading undermines investor confidence in the fairness and integrity of the securities markets".

Does anyone know what my (our) recourse is, and how I (we) go about getting justice? Thanks so much...

lindq · Apr 18, 2016

joezapp said:
Last Thursday there was some curious buying in an out-of-the-money put option expiring next day, especially in the late afternoon. This was all explained upon a pre-announcement by the company later that evening of a very bad earnings quarter. The option gained 3300% overnight. I'm one of many harmed by selling those illegally profitable contracts to those who were privy that very bad company news was forthcoming that evening. It's said that "A person is liable of insider trading when he or she has acted on privileged knowledge in the attempt to make a profit." It's also said that it is illegal because "insider trading undermines investor confidence in the fairness and integrity of the securities markets".

Does anyone know what my (our) recourse is, and how I (we) go about getting justice? Thanks so much...

www.SEC.gov

What was the company and when did they report?

joezapp · Apr 18, 2016

lindq said:
www.SEC.gov

What was the company and when did they report?

Thanks so much for the reply. The company is Super Micro Computer, Symbol SMCI, and they pre-announced a very bad quarter at 6:45 PM Thursday April 14.

i960 · Apr 18, 2016

You weren't harmed by someone you were openly selling to - particularly when you know earnings is coming right up. They might have taken part in insider trading which is a whole separate issue, but if you were offering in the first place it could have been legit bids hitting you or insider bids hitting you, doesn't matter.

Why the heck are you selling OTM put grenades on individual companies right before they announce earnings? Nobody sane does this without hedging the entire thing.

RRY16 · Apr 18, 2016

joezapp said:
Last Thursday there was some curious buying in an out-of-the-money put option expiring next day, especially in the late afternoon. This was all explained upon a pre-announcement by the company later that evening of a very bad earnings quarter. The option gained 3300% overnight. I'm one of many harmed by selling those illegally profitable contracts to those who were privy that very bad company news was forthcoming that evening. It's said that "A person is liable of insider trading when he or she has acted on privileged knowledge in the attempt to make a profit." It's also said that it is illegal because "insider trading undermines investor confidence in the fairness and integrity of the securities markets".

Does anyone know what my (our) recourse is, and how I (we) go about getting justice? Thanks so much...

So let's get this straight, you noticed curious buying in out of the money puts in SMCI that were expiring the next day and you decided to be a seller? If what you've written is true, your an idiot, quit your crying take your medicine and move along..you got Zapped!!

joezapp said:
Thanks so much for the reply. The company is Super Micro Computer, Symbol SMCI, and they pre-announced a very bad quarter at 6:45 PM Thursday April 14.

joezapp · Apr 18, 2016

i960 said:
You weren't harmed by someone you were openly selling to - particularly when you know earnings is coming right up. They might have taken part in insider trading which is a whole separate issue, but if you were offering in the first place it could have been legit bids hitting you or insider bids hitting you, doesn't matter.

Why the heck are you selling OTM put grenades on individual companies right before they announce earnings? Nobody sane does this without hedging the entire thing.

The company doesn't report earnings until 4/28. Options expiration has passed. The company did not announce that they were going to pre-announce...but the option buyers quite obviously had this information...hence insider trading on the options.

joezapp · Apr 18, 2016

RRY16 said:
So let's get this straight, you noticed curious buying in out of the money puts in SMCI that were expiring the next day and you decided to be a seller? If what you've written is true, your an idiot, quit your crying take your medicine and move along..you got Zapped!!

You're REAL nice. I sell options for a living. Been doing it a very long time, with great success I might add. I see how your mind works. Seems like you are nothing but a troll. YOU move along.

OptionGuru · Apr 18, 2016

What was the weekly OTM put Volume like on Thursday?
Any spike of Volume should have been a Red Flag.

joezapp · Apr 18, 2016

OptionGuru said:
What was the weekly OTM put Volume like on Thursday?

Any spike of Volume should have been a Red Flag.

Hi Option Guru. There was a spike, and it was indeed a red flag. However, as option expiration nears there is often a spike in out-of-the-money options due to traders looking to exit their option positions. As an option seller, I help them get it done.

The red flag here was not merely the late volume, but that the buyers didn't bid the minimum bid. This is a rare occurrence. But the buyer also put up a bid-size of just "2", which lessened the "redness". When I sold the buyer the 2, he maintained looking for 2. I sold him 2 more, and he again maintained looking for 2. I then put up an ask of 3, and he grabbed all 3. I stopped there. The buyer was obviously very motivated, and he was merely trying to disguise it somewhat. Flag turned very red again.

At 6:45PM same day, all the option sellers that day saw the reason why the buyer was so motivated. The company pre-announced a very bad quarter. The time of the company news is also "curious".

I often sell 30 or 40 contracts OTM near expiration, facilitating the option buyer to exit his contacts near expiration. I was conservative in comparison here due to the red flags. I encounter this type of shady activity rarely, and most often when I've encountered it, the option buyer doesn't have the stock price get to where he needs it to be anyway, even with the illegal advantage. It's the first time I've seen the advantaged buyer hit the jackpot for 3300% overnight.

Thanks for your input!

OptionGuru · Apr 18, 2016

joezapp said:
The red flag here was not merely the late volume, but that the buyers didn't bid the minimum bid. This is a rare occurrence. But the buyer also put up a bid-size of just "2", which lessened the "redness". When I sold the buyer the 2, he maintained looking for 2. I sold him 2 more, and he again maintained looking for 2. I then put up an ask of 3, and he grabbed all 3. I stopped there. The buyer was obviously very motivated, and he was merely trying to disguise it somewhat. Flag turned very red again.

If the buyer was motivated why not go for 10+ contracts with a Market Order?
Or a Limit Order well above the Ask for 10+ contracts ( my broker will fill it at that price or better).
Only 2 or 3 contracts at a time doesn't seem very motivated to me.