One of the earmarks of a novice's insider trading attempt is the use of very short-dated stock options (and in very high volumes). In the case described below, the trader bought 30 times the normal daily volume -- in a matched pair of standardized options that expire this coming Friday. So the trader was betting that there would be a major price move within five trading days. I could be wrong, but that smells like insider trading. Why?
Well, because, in the mega-cap multinational pharma sector (Merck is the world's second or third largest public pharma company, depending on how one measures), those sorts of moves almost never occur -- and certainly, not right on a two-minute-egg-timer.
But that's what this trader would have us believe he or she figured out -- independently. Seeing more than a 5 per cent increase in the stock of a company like Merck -- where tens of billions of dollars of new revenue will be needed to move the needle up, or a loss of a like amount will be needed to force the needle down -- just. isn't. very. likely. to. be. perfectly. timed.
And it would take perfect timing to call this sort of a move (which is implied by the purchase of options so close to their expiry date). So, I expect the SEC is already looking closely at this trade -- and the trader behind it, given that the investing press has already noted it. The 30 times normal volume was going to trip alerts at the SEC, in any event. I wish the trader good luck in pointing to how she/he knew to make the trade -- beyond sheer luck. The SEC will never buy that -- and it has to be something that was known to the public, as of Friday.
Here's a bit from the story -- do go read it all:
. . . .Big pharma is usually a slow-money sector, but one investor wants to make a quick buck in drug maker Merck.IF (and that's a big if!) the trader is allowed by the SEC to keep the profit here (that is, it was a legitimate trade), s/he has already pocketed over $500,000 (about the price of new Murciélago!) -- at the NYSE open, this morning. Clearly the trader dumps the puts, and holds the calls, from here. Wow.
optionMONSTER's Heat Seeker monitoring program detected the purchase of 3,738 Weekly 47.50 calls expiring this Friday for $0.76. An equal number of the Weekly 47.50 puts was sold simultaneously for $0.77. Volume was more than 30 times open interest at both strikes, indicating that a new position was initiated.
The investor collected a credit of $0.01 from the put sale and now controls the equivalent of 373,800 shares through the long calls. The trader can theoretically earn infinite profits above $47.50 but will lose money below that level. (See our Education section for more on how to generate leverage with options.)
MRK fell 0.79 percent to $46.70 on Friday. [But Merck is up almost 5 per cent in NASDAQ pre-market, this monring]. . . .
1 comment:
Once at 4:32 am… grinning…
Post a Comment