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

[joezapp]

Of course he doesn't work for a prop trading firm like that... he's an option seller... whatever that means...
And otherwise he'd be smacked in the head for selling something short like that, or at least for complaining afterwards for it being 'not fair'.

It means that I make my living selling options, and net-net it has been extremely lucrative for me. That's what it means.

If I worked for a firm, no, I wouldn't get smacked in the head, lol. They'd be giving me bonuses. Not complaining at all. I merely posted for insight on regulatory process since there is a high likelihood that I uncovered insider trading. Any novice can see that it's "highly likely". Definitely? No. And what fun it is to play devil's advocate. But it IS highly likely. And if that is what it is, it's illegal.

 

[JackRab]

But it IS highly likely. And if that is what it is, it's illegal.

I agree, but SEC would probably not find this interesting enough. There's no example to be made to the public, any fine is not enough to cover legal costs. If it wasn't short covering/risk limiting they would've made about 60k.

Again, I've seen it happening a lot. Probably one of the biggest I noticed going on was trading in Reebok/Adidas mid 2000's. Also during GFC...

I would always slap someone in the head if they'd sell right before expiry though... and probably make them buy it back

 

[ironchef]

Thank you joezapp for sharing your insights.

 

[joezapp]

I agree, but SEC would probably not find this interesting enough. There's no example to be made to the public, any fine is not enough to cover legal costs. If it wasn't short covering/risk limiting they would've made about 60k.

Again, I've seen it happening a lot. Probably one of the biggest I noticed going on was trading in Reebok/Adidas mid 2000's. Also during GFC...

I would always slap someone in the head if they'd sell right before expiry though... and probably make them buy it back

That's what I estimated. The volume at the time I participated shows 200, so $64,000 profit on those alone. Nice hit. There wasn't much open interest, so short covering isn't likely.

As you note, many traders have to exit their positions come expiration. This actually makes for terrific opportunities. I had an otherwise great week last week. Can't fathom why you frown upon selling to them.

For the record, I didn't buy the option back. I took the assignment. It's actually a good company (this is a must before I sell a put option). Earnings have been growing, it has 7 analysts all with a buy, price target 39. I'm halfway back to 30. Might get there by Friday if the chart's trend holds up. But I'm still going to follow through even upon exit just to see if the regulators actually don't do anything, which is what I always hear. So far I've been thanked for letting them know about it. We'll see what happens. Like I said, I'm small potatoes compared to the others who sold the contracts that day. I'm sure there is an individual out there who took a major beating on this...maybe $64,000 if he closed out rather than take the assignment!

 

[newwurldmn]

I wouldn't worry about insider trading unless you are providing liquidity which is what the OP was doing. He saw someone specifically buying a contract and took the view they would be a "dollar short and a day late" to put it in his words. He made the bet they weren't that informed. That was his only view here. If you are trading on your own view insider information is not a scary thing.

I get it and I know I should be smarter. But, in a negative sum game (with transaction costs), if the insiders made money, it has to come from somewhere and most likely me.

I know I should take responsibility, and am, but how do I avoid this? Do you have any suggestions?

I benefited greatly from some of the others' coaching and am willing to learn more from you.

Thanks.

 

[Martinghoul]

Thanks. I read the articles, basically little guys like me without any connections or inside info never stood a chance. A very depressing thought.

Anymore words of wisdom for us retail guys?

Thanks.

I wouldn't get too sad... Retail guys have some advantages and there's ample scope to do things, if you're patient, diligent and careful.

 

[Surgo]

What's with all the nastiness in this thread? You all are gonna drive off yet another person who actually makes their living trading.

 

[ironchef]

I wouldn't get too sad... Retail guys have some advantages and there's ample scope to do things, if you're patient, diligent and careful.

Thank you for your encouragement. You are right, after many years of investing, I find patience the most important element. A retail guy like me can afford to wait for a fat pitch or wait for things to turn.

However, how to recognize a fat pitch or find one is why I am here.

I wouldn't worry about insider trading unless you are providing liquidity which is what the OP was doing. He saw someone specifically buying a contract and took the view they would be a "dollar short and a day late" to put it in his words. He made the bet they weren't that informed. That was his only view here. If you are trading on your own view insider information is not a scary thing.

Thanks.

My view is not usually correct. I have been crashed (but also made a lot) both going long and going short quite a few time, Kraft, Google, MSFT RIG, just to name a few. So the way I figured, I needed more time on my trade to let things settle down and gave me time to figure out what to do. Trading too frequently only make my broker rich.

So far it seemed to be working but as you, Martinghoul and drcha said many times, the market was mostly efficient so over time and over many trades things would even out and could net me very little unless I can develop an edge.

Regards to both of you.

 

[ironchef]

What's with all the nastiness in this thread? You all are gonna drive off yet another person who actually makes their living trading.

Most folks were well intentioned and that to me is more important than being polite but really said nothing.

 

[joezapp]

Thank you for your encouragement. You are right, after many years of investing, I find patience the most important element. A retail guy like me can afford to wait for a fat pitch or wait for things to turn.

However, how to recognize a fat pitch or find one is why I am here.

Thanks.

My view is not usually correct. I have been crashed (but also made a lot) both going long and going short quite a few time, Kraft, Google, MSFT RIG, just to name a few. So the way I figured, I needed more time on my trade to let things settle down and gave me time to figure out what to do. Trading too frequently only make my broker rich.

So far it seemed to be working but as you, Martinghoul and drcha said many times, the market was mostly efficient so over time and over many trades things would even out and could net me very little unless I can develop an edge.

Regards to both of you.

In terms of stocks, yes, trading frequently enriches your broker, not you. It sounds like you're impatient. I have a buddy like that. He buys when he should be selling, he sells when he should be buying...because he lacks patience. And he regrets it afterward. When I started trading nearly 30 years ago, I wanted to be a stock trader. I found it's not the way to go. Now, I'm a stock INVESTOR. I take my option premiums and dividends and I invest them in stocks that I've researched well. I also look for the "fat pitch". There was a fat pitch on January 20, and again on February 11. Were you buying?

The expert technician that called the August correction exact said there will be another "fat pitch" in October. Keep your powder dry, raise some cash, and start making your list. Good luck!