What to do when you have access to inside news?

[ElectricSavant]

Only when he "guarantees" it Did you take my short GBP/CHF ?

Quote from illiquid:

What happens if you short a company for an earnings report, based upon a "recommendation" by a fellow ET poster? Say you've never traded the stock before, but since a certain person here has a pretty impressive record, you just short it based on his call, and it tanks big. Does this still raise red flags?

 

[illiquid]

Quote from ElectricSavant:

Only when he "guarantees" it Did you take my short GBP/CHF ?

Crosses make me crosseyed, I don't trade that fancy

 

[ChiBondKing]

gee maybe i should go to more country clubs and be a bathroom shoeshine attendant

... cheap cologne sir???

 

[Optionpro007]

like Rearden's M two minutes before the close type of recommendations ? lol

two minutes for the average intellect here in ET would not be considered illegal imo but pure luck....

Quote from illiquid:

What happens if you short a company for an earnings report, based upon a "recommendation" by a fellow ET poster? Say you've never traded the stock before, but since a certain person here has a pretty impressive record, you just short it based on his call, and it tanks big. Does this still raise red flags?

 

[riskarb]

Quote from Pekelo:

I was wondering the same. Let's say I am at a baseball game and 2 guys behind me discussing a company. Unknown to me they can be insiders, they sure sound knowledgable. Now if I think what they say is sound and act on it, I don't think I could be prosecuted for it.

By the way Riskarb, you are a Snitch....

I was hoping the sarcastic tone made it obvious I was joking. I've no love for the SEC [Pretorius/1991 sanction].

 

[illiquid]

Quote from optionpro007:

two minutes for the average intellect here in ET would not be considered illegal imo but pure luck....

That's the point I was going to make, if you did have inside info, have someone anonymously post a "tip" or "hunch" on some public forum, then act upon it claiming you just got desperate and took a shot.

 

[nkhoi]

Quote from illiquid:

That's the point I was going to make, if you did have inside info, have someone anonymously post a "tip" or "hunch" on some public forum, then act upon it claiming you just got desperate and took a shot.

 

[Pabst]

Quote from OldTrader:

I think alot of this depends on how you are receiving this information. For instance, let's assume you have a personal relationship with a corporate insider, who has now tipped you on what the earnings are going to be. If you make a trade you are probably going to be guilty of insider trading.

But let's say you have no relationship with any corporate insider. Let's say instead that you overheard someone talking about the earnings in a locker room at the golf club. I think this is a different issue.

Now here's the problem: if you are ever charged and convicted of insider trading, you're going away to the big house. Insider trading is very murky, as to what is and what isn't. Asking this type of question on the internet is really stupid. Assuming you are serious and do make a trade, now you've left a possible trail. But further, why would you expect any particular expertise on a newsgroup of this type?

It's all in the details. Every trade made on insider information is not necessarily insider trading. It depends. But even if you are charged, and win, you lose in all probablility because of the legal fees. So you are truly interested you should speak with a lawyer regarding all the details of this situation.

That said, I'm always amused by "insider information". There are people who are pretty good about "guessing" earnings ahead of time. So what? The fact that you know the earnings doesn't mean you will profit from said knowledge. I suppose you've seen a stock beat the expectations and trade down sharply anyway? It's one thing to have the information ahead of time....it's another to know what the market will make of the information.

OldTrader

EDIT: By the way, I use "maybe", "possible", etc throughout this post because the insider trading laws are very murky. Alot of what happens in insider trading has to do with the details, case law, etc.

The law prohibits the use of "material" information. Makes no difference how it's obtained. If I overhear two strangers and act, I'm an "inside trader." In that instance is my action criminal? Of course not. But it is civil and I WILL be forced to pay a fine commiserate with my winnings. And if one lies as to how they received the tip they're screwed. Martha. Lying to Federal investigators, impeding a Federal investigation ect. VERY criminal.

But yea OT you're right. There's FAR better "tips" than a companies earnings. How about the Business Week typesetter/printer who was convicted years ago of buying stocks mentioned by Dorfman in his next weeks column? A good scam while it lasted.......

 

[BlueHorseshoe]

Quote from Pabst:

The law prohibits the use of "material" information. Makes no difference how it's obtained. If I overhear two strangers and act, I'm an "inside trader." /B]

It definitely depends on how certain information is obtained. Old-dude was pretty spot on.

This from my 1999 Standards of Practice Handbook from the CFA Institute:

(I paraphrase this to quickly get to the point.)

Example 2: Walsh is riding an elevator up to her office when she overhears the CFO say the past quarter earnings have unexpectedly and significantly dropped. CFO adds this will not be released to the public 'til next week. Walsh immediately calls her broker on her cell phone and tells her to sell the stock.

Comment: Walsh has not violated Standard V(A) [violated prohibition against using material non-public info] because no duty was breached by either Walsh or the CFO when the information was overheard, and the information was not misappropriated.

In a nutshell, it is insider trading only if you acquired a fiduciary duty upon reciept of the information, or if you stole the information.

Another example:

On here way home down the elevator Walsh overhears a cleaning woman tell a friend she found XYZ info while tooling around in the garbage bin. Walsh calls here broker.

This is a violation because Walsh knew the info was 'misappropriated.'

 

[zdreg]

Quote from qll:

I always heared the stories of inside trading. Even dreamed what if I knew this this this before everybody knows that that that. Well this really happens now.

It happens that I know the earnings of a large public traded company one week before they are released to the public. I checked the recent market reaction of recent earning release. The stock price is up or down 5%-15%. Its average daily trading volume tells me if I can trade $20 million one day before the earninng release, the market won't feel a thing. So that is $2 million profit per Q, or $8 million per year.

What should I do now?
A shut up and borrow as much money as I can to trade the stock
B trade options for max gain
C find somebody who has $20 million and share the profit
D don't use it, because it is illegal, although nobody will ever know because I have nothing related to this public company.

Very confused now. Please let me know what you will do and what I should do now.

the above scenario is nonsense . the giveaway is that he expects to do it every quarter.

"So that is $2 million profit per Q, or $8 million per year. "



the originator of this thread has had one big laugh at the expense of those who honestly responded.

one poster got it right when he said that a suitable candidate for a lobotomy had been found