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

[joezapp]

Isn't this "possible insider trading" one of the risks that you face when you sell short-dated OTM options? When picking pennies in front of the steamroller, you shouldn't be too surprised when occasionally you get flattened, no?

Realistically, the issue is that it will probably be difficult to prove that the buyer acted on the basis of non-public info. You can certainly attempt to allege improper behaviour and report the particular pattern of trading to the SEC/others (in fact, it may be your duty to do so). However, given everything, it's unlikely to be of much help to you, so it might not be worth investing too much time in it. Just my $Z2c...

Of course. Absolutely correct. And yes, I'm not holding my breath that anything gets done. I've heard that "nothing getting done about it" is the norm. Just a good time to check out the process, especially for all the others who sold the contracts Thursday. My 7 contracts is small compared to them!

Thanks...

 

[joezapp]

Also, it looks like there is more than one way to skin a cat: Nassim Taleb, the author of Black Swan, often took the opposite side of your trade. He advocated taking regular small losses and when a black swan hit, he got big payoffs. He claimed he made enough to be very wealthy.

Good point. I started out as a buyer of options in the 1990s. What I learned, and I believe it's true for most, is that you will occasionally have a big winner. However, the losses outsize the wins over the long haul. I'm sure that there are experts who have mastered the game, though. Tough game to win at for sure.

 

[joezapp]

It may have been Jesse Livermore that said "when the school marm starts dancing on the table, it's time to leave the bar".

To me, watching someone super aggressively buying DOTM options is that school marm.

Right-on. Well put. That's exactly how it went. I left the bar when I saw the school marm. Just not before I had a few drinks...

 

[Q3D]

Much easier game to start selling options-for-morons trading excrement than to become profitable at this. Keep up the good work and the righteous will expose and steal (legally by trading) from these crooks.

 

[JackRab]

A few hundred options doesn't sound like a lot to me. Maybe he was buying his short position back. Or getting cheap cover for a day. So which put was it, 32? Selling short a put like that close to expiry is just stupid. Would've happened sooner or later if you do that all the time. Risk/Reward is just not worth it, especially overnight.
Whether it was insider or not, just a silly trade to do.

 

[ironchef]

Good point. I started out as a buyer of options in the 1990s. What I learned, and I believe it's true for most, is that you will occasionally have a big winner. However, the losses outsize the wins over the long haul. I'm sure that there are experts who have mastered the game, though. Tough game to win at for sure.

I am new to this. Started on the sell side after attending a few classes, read a few books and watched lots of tastytrade. Net loss after about a year. Switched to buy side and rode the bull market until this year. Looking back, I did not start with DOTM, just ATM and OTM and did it mechanically like they backtested in tastytrade. Maybe I should relook at going back to the sell side selling DOTM?

 

[joezapp]

I am new to this. Started on the sell side after attending a few classes, read a few books and watched lots of tastytrade. Net loss after about a year. Switched to buy side and rode the bull market until this year. Looking back, I did not start with DOTM, just ATM and OTM and did it mechanically like they backtested in tastytrade. Maybe I should relook at going back to the sell side selling DOTM?

It's really what you feel comfortable with. Remember, selling DOTM means small profits. Less risk=less reward. Small gains can add up over time. They also add to your paperwork come tax time. You can make the gains larger by selling DOTM puts with expirations months to years away, such as LEAPS, on stocks that you like. By doing that, you ensure that if the stock gets put to you, you're buying it at a much more favorable price than today's price. Whatever you decide to do, I wish you good luck!

 

[JackRab]

• 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.

It's called an iceberg order and hides the total demanded qty. Eventually it kinda works like clickbait...haha.
A market order in options is just silly, MM pulls quotes and you just pay whatever is way behind.
0.10/0.20 market, there might be a $5 offer behind that... which will be lifted by a market order when the MM pulls their quote. There is no exchange breaker in options which regulates large moves in stocks/futures. So no, don't do market orders in options.

 

[ironchef]

It's really what you feel comfortable with. Remember, selling DOTM means small profits. Less risk=less reward. Small gains can add up over time. They also add to your paperwork come tax time. You can make the gains larger by selling DOTM puts with expirations months to years away, such as LEAPS, on stocks that you like. By doing that, you ensure that if the stock gets put to you, you're buying it at a much more favorable price than today's price. Whatever you decide to do, I wish you good luck!

Thank you for the coaching.

 

[joezapp]

A few hundred options doesn't sound like a lot to me. Maybe he was buying his short position back. Or getting cheap cover for a day. So which put was it, 32? Selling short a put like that close to expiry is just stupid. Would've happened sooner or later if you do that all the time. Risk/Reward is just not worth it, especially overnight.
Whether it was insider or not, just a silly trade to do.

Actually, it IS a lot. Especially on this small-cap name. And it was the 30 put. More than 10% OTM with 1 day to expire on a stock trading in a small range all week. Buyer(s) never even attempted to post the minimum bid. That is not normal. Even a novice can see that these purchases were "highly likely" made with privileged information. We'll see what happens. If the organizations that now have the complaint are serious about maintaining the integrity and confidence in the markets, this will interest them.