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

[El OchoCinco]

I often sell 30 or 40 contracts OTM near expiration, facilitating the option buyer to exit his contacts near expiration. I

Maybe I am reading your post wrong but how do you as an option seller of OTM puts facilitate liquidity for other option holders to also sell their puts?

Do you mean the other put sellers who sold for a much higher price and now want to buy to close at $0.15? So you step in and take the other side and sell those puts OTM and pick up pennies in front of the steamroller?

 

[ktm]

You've been "selling puts for years" and your first question is how to report or deal with insider trading? I've missed something here.

 

[joezapp]

RRY16, thanks for the change of heart, and welcome back. I certainly have considered asking my broker what exchange my contracts were traded on. I actually have a relationship manager there that I speak with regularly. If you believe that the information will be useful to me, and not just informative, I can get the information in the morning.

I did a lot of research on the topic before coming here...Options Regulatory Surveillance Authority (ORSA), FINRA, SEC. But make no mistake. The wealth of knowledge on this website is and always has been abundant. The elite trader indeed presides here, and this is definitely a "go to" source for information and discussion related to elite trading. There is always someone here who "knows" and is willing to share. This is a terrific website. I first "logged in" in 2007.

 

[joezapp]

Maybe I am reading your post wrong but how do you as an option seller of OTM puts facilitate liquidity for other option holders to also sell their puts?

Do you mean the other put sellers who sold for a much higher price and now want to buy to close at $0.15? So you step in and take the other side and sell those puts OTM and pick up pennies in front of the steamroller?

Nothing like that at all. Someone has to be willing to sell, or else the buyer can't buy (at least not at their bid). Sometimes the bid is out there all day. I'm not shy about selling contracts for even a penny or two. They accomplish what they needed...to get out of their contracts...and I earn a token amount.

 

[OptionGuru]

Nothing like that at all. Someone has to be willing to sell, or else the buyer can't buy (at least not at their bid). Sometimes the bid is out there all day. I'm not shy about selling contracts for even a penny or two. They accomplish what they needed...to get out of their contracts...and I earn a token amount.

Makes no sense.

• Doesn't an MM have to provided a market for about 10 contracts?
• A motivated buyer (as in this case) would Buy at the Ask - he wouldn't waste his time trying to buy at the bid.

 

[joezapp]

You've been "selling puts for years" and your first question is how to report or deal with insider trading? I've missed something here.

Many years. This whole millenium, actually. It's not my first question. You make it sound like I should know the answer. Guess I've been lucky. So what's the answer, then, ktm?

As I said in an earlier post...I've seen it on a few occasions. I was able to let it go because even with the privileged information, the stock price still didn't get to where the option buyer needed it to go, OR it DID but not in time. This is the first time that the privileged insider scored on me, so this is the time that it's worth my while to spend some time on it. However, even though they didn't profit in the past and I let them off the hook, their actions were still illegal and worthy of complaint. Most recently, in a similar scenario, the option buyer missed his far out-of-the-money strike by a dollar and a day (the news came out on Saturday post expiry, the stock opened Monday near his strike).

 

[joezapp]

Makes no sense.

• Doesn't an MM have to provided a market for about 10 contracts?
• A motivated buyer (as in this case) would Buy at the Ask - he wouldn't waste his time trying to buy at the bid.

A) No. And, B) he bought some at the ask as well. Remember, it's Thursday afternoon, the option is rather far out of the money (over 10%), the stock's been rather flat all week...the minimum bid was all he needed in order to buy. Going double the minimum bid was being "patiently aggressive". As I surmise, and as an earlier poster surmised, the buyer (or criminal, as he said) was likely attempting to disguise his actions.

Of course he can buy 300 contracts at market, which was 15 cents. That's not all that subtle when you're insider trading, is it?

 

[ironchef]

Nothing like that at all. Someone has to be willing to sell, or else the buyer can't buy (at least not at their bid). Sometimes the bid is out there all day. I'm not shy about selling contracts for even a penny or two. They accomplish what they needed...to get out of their contracts...and I earn a token amount.

Apparently there are other retail folks out there doing what you are doing. I met a guy at my broker's free options introduction seminar a couple of years ago who did exactly the same. He claimed he had been doing that for 10-15 years and made enough so he quit his day job long ago.

I asked him why he attended this class for beginners, his answer was: Just like selling DOTM options, he never refused a free lunch (which was provided in class).

I welcome comments about this strategy's merit as I was actually very tempted to try it at one time.

 

[joezapp]

Apparently there are other retail folks out there doing what you are doing. I met a guy at my broker's free options introduction seminar a couple of years ago who did exactly the same. He claimed he had been doing that for 10-15 years and made enough so he quit his day job long ago.

I asked him why he attended this class for beginners, his answer was: Just like selling DOTM options, he never refused a free lunch (which was provided in class).

I welcome comments about this strategy's merit as I was actually very tempted to try it at one time.

As with anything else, you have to know what you're doing, and it requires a lot of time and a lot of capital. Each trade is a small gain, and the tax return is very thick. I enjoy it, but it's not for everyone. One bad trade can wipe out week's of good ones. And, as you can see by this thread, you can be sharp and experienced and still get burned. If someone has access to information, and worse, privileged information, and you don't, you will run into problems.

The old saying is very true here: It works until it doesn't. I'm holding the bag on stocks in my portfolio that were assigned to me years ago.

 

[ferrycorsten]

Regardless of whether it was insider trading or not, you can't defend your loss because you are perfectly content running a leptokurtic operation. There is nothing wrong with that, but if you understood the risk, you wouldn't be complaining.

I think all the time you would waste with the SEC would be better spent on improving your trading, or spending time with your wife, kids, family, whatever.