$1.3 million lost in blatant but failed attempt at insider trading?
by ilene - November 17th, 2009 1:41 am
Welcome to Baruch at Ultimi Barbarorum.* In this post, Baruch revisits the alleged, insider trading of 3Com options, casting doubt as to whether the calls were bought by persons with inside information prior to the takeover. More likely, scared shorts were trying to hedge their positions. – Ilene
$1.3 million lost in blatant but failed attempt at insider trading?
Courtesy of Ultimi Barbarorum
The blogosphere made the catch! The Interweb protects the rest of us from evil doers! The world is ablaze with the news that prior to the 3Com buyout announced by HP last week, there was an unusual amount of volume in the $5 november call in 3Com. We’re all pretty sensitised to insider trading at the moment, and so this looks as clear cut and beautiful a case of evil-doers caught with their hands in the till as we are likely to see in our time on earth. As Tyler Durden puts it:
This is so blatant it is sufficiently stupid that even the SEC will presumably catch the perpetrator. Here’s to hoping the trader ends up being Galleon’s Raj Raj buying options from his E-Trade account while on bail. Of course, we fully expect any prosecution case against the perpetrator to fall apart at the seams courtesy of a completely inept legal team at the SEC and the Justice Department.
Oh really? Before the Zero Hedge folks get the pitchforks out, let’s stop and think a bit. Let us be splitters, and not lumpers, and we might see that would be quite reasonable for the SEC and DoJ not to prosecute anyone at all. Using the principle of Occam’s Razor, they may well tend to conclude that no insider trading took place.
Let’s get technical here. Do forgive Baruch if you get lost (because it may be that you’re not actually all that bright and that’s not his fault). In the case of the unusual volume in the 3Com options, you should know that incredibly unusual volumes in options is not terribly unusual, if you follow me. It is in fact the case that the volume of a particular option resides, as Taleb would have it, in Extremistan. It is subject to many many days of low and limited trading, and very few days of extremely high volume, orders of magnitude above the norm, where most of the total…
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Citizens On Patrol: The Blogosphere As Regulator
by ilene - November 11th, 2009 11:07 pm
Bloggers also coin new words, for example, "embiggen." – Ilene
Citizens On Patrol: The Blogosphere As Regulator
Courtesy of Joshua M Brown, The Reformed Broker
Tonight we witnessed a watershed event in financial blogging, and it concerns The Case of Who Front-Ran the 3Com Takeover.
By now, the only people out there still trying to use options contracts to profit from inside information are the brain-dead and the citizens of non-extradition countries. As is well known, I am a huge proponent of the financial blogosphere and this evening’s 3Com options bust just gave me goosebumps.
The story is this:
At 4pm, shares of telco equipment company 3Com (COMS) were halted followed by the announcement of an acquisition by Hewlett-Packard at a 40% premium. The financial blogosphere sprang into action, immediately pointing out that today’s trading volume in 3Com’s options was triple its 4-week daily average. Options are the weapon of choice for the inside information crook as they give you the most bang for your buck on a near-term jump in a stock.
OptionMonster.com’s Jon Najarian picked this 3Com options activity up, probably first, and posted the below via Twitter:
(click image to embiggen)
From OptionMonster.com
Najarian’s revelation was immediately followed by separate but equally incisive comments from some of the biggest and most influential market commentators out there. None of this was coordinated by a producer at CNBC nor was it orchestrated by the editorial staff at the Wall Street Journal.
Rather, it was an organic meme that spread around the financial web by means of Twitter, WordPress, Blogspot and Typepad.
The mainstream media picked up on this insider trading angle only AFTER the bloggers nailed it, at least from what I’ve seen based on the times of the articles and posts.
Now we don’t know for sure whether or not illegal activity took place, but if it quacks like a duck…
Congratulations to Jon Najarian of OptionMonster.com, Tyler Durden of Zero Hedge, Andrew Ross Sorkin of DealBook and Karl Denninger of Market-Ticker.
UPDATE: Reader MarketAddict informs me that:
OptionRadar on StockTwits tweeted the unusual call volume during the day today:
Ladies and Gentlemen of the stock market, I give you your new citizen-regulators.
Here are the referenced links:
Najarian’s TwitPic (TwitPic)
1.5 Million in Blatant Insider Trading Activity (Zero Hedge)
Whispers About 3Com (DealBook)
Blatant Insider Call Buying (Market-Ticker)
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$1.5 Million In Blatant Insider Trading Profit Following 3Com Acquisition (Or An Innocent Calendar Spread)
by Insider Scoop - November 11th, 2009 7:55 pm
Maybe we should rename this section the "Insider Trading Zone" and get a little more action. – Ilene
$1.5 Million In Blatant Insider Trading Profit Following 3Com Acquisition (Or An Innocent Calendar Spread)
Courtesy of Tyler Durden at Zero Hedge
3Com’s acquisition by Hewlett Packard for $7.90/share after the close today came as a surprise to many, but not all. Because someone bought 3 times the open interest in November $5 calls and 15 times the open interest of the December calls. In summary: 3,961 Nov $5 calls were purchased today (964 open interest) for $0.65, as were 3,269 December $5 Calls (210 open interest) for $0.85. The profit, assuming the insider action was by one entity, is about $870,000 on the Novembers and $650,000 on the December strikes, for a not too shabby illegal daily P&L of $1.5 million. This is so blatant it is sufficiently stupid that even the SEC will presumably catch the perpetrator. Here’s to hoping the trader ends up being Galleon’s Raj Raj buying options from his E-Trade account while on bail. Of course, we fully expect any prosecution case against the perpetrator to fall apart at the seams courtesy of a completely inept legal team at the SEC and the Justice Department.
The chart below summarizes the trading action in COMS $5 near term calls.
And here one can see what a blazing outlier today’s volume action was in December $5 calls.
h/t ever vigilant momo chaser C-Mac
*****
Zero Hedge later issued the following report on the squidy tentacled Goldman Sachs’ possible involvement.
Goldman And The 3Com "Insider Trading" Connection
Courtesy of Tyler Durden
Following up on our earlier disclosure about potential insider trading in 3Com stock, we have uncovered something interesting. Did Goldman (in)advertently tip off clients that 3Com was potentially in strategic negotiations? 3Com was previously supposed to present at Goldman’s Data Center Techtonics Conference today at the Sheraton Hotel in New York (Agenda below). In a limited distribution note, Goldman yesterday advised selected clients that 3Com had withdrawn at the last minute from the Conference. As those in the industry are well aware, any last minute switches of this kind are indicative of imminent good or bad news dissemination, and more often than not are associated with some strategic announcement.
While the person buying…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site