Was Someone Tipped Off to the LinkedIn Sale? | Hacker News Reader

Was Someone Tipped Off to the LinkedIn Sale?

fortune.com

84 pointsfullshark43 comments

Guaranteed this is insider trading if its a small time investor.. I've traded plenty of options, and no small time guy would buy more than $135k at 160 strike when closing price was 131 and the price of the stock for the past few months went as low as $100 -- and a time window of 2 months until the option expires?? Extremely risky trade.. very very likely you would lose all of that $135k.. the most common thing with options that close in like 2-3 months is that the stock just stays close to the same value, so you wait a little while and the stock doesn't go anywhere up or down, so you just have to sell your options at a loss.. but as that window of time closes to a few weeks and you are way out of the money like 160 vs. 131, then your ability to sell that option gets worse and worse until finally you sell it at like a 75% loss. The 175 strike option is even more ridiculous.. 175 on 131... man.. extremely extremely speculative... unless those traders have a history of making really risky bets like that, then they are almost assuredly in the know of what was going to happen. My bet is that they either live near Microsoft or Linked in locations (Seattle or SV).. Also the reason they placed the bid in the last 5 minutes of trading is that there are various auto-traders out there that chase this kind of action.. if they see really unusual buying of out of money options (extremely risky), then they buy a little too thinking that somebody must know something and they profit also.. so if they bought these in the last 5 minutes of trading, then its possible the algorithm might not pick up on the trend so it reduces the number of people jumping in blindly into the trade.. so they make the spike smaller, but also isolate themselves.. extremely risky.. so I think somebody is giving that money back that they made....

According to traders who were cited in the article, the calls were part of an iron condor. An iron condor is an option strategy where you buy and short several options at once, and which speculates on LOW volatility. The 160 OTM call just happened to be the most profitable part of the strategy, but you shouldn't look at it in isolation from the other components.

Cited from theoptionsguide.com:

"The iron condor is a limited risk, non-directional option trading strategy that is designed to have a large probability of earning a small limited profit when the underlying security is perceived to have low volatility. The iron condor strategy can also be visualized as a combination of a bull put spread and a bear call spread.

Iron Condor Construction

Sell 1 OTM Put

Buy 1 OTM Put (Lower Strike)

Sell 1 OTM Call

Buy 1 OTM Call (Higher Strike)"

linkedin hasn't been a good candidate for low volatility. always possible that they thought it wouldn't move, but there are much less volatile stocks out there

Absolutely. Someone knew and the advertised that fact in the stupidest way possible. That person is going to find themselves with some explaining to do, and they are probably going to end up paying a fine. My guess is that the information will be at most one hop away from the trader.

My boss is a former SEC investigator. We talk about this kind of trade a lot. Either somebody hit the lottery or this trade is crooked as hell.

I am genuinely curious how its possible to keep track of 'insider trading'. There is always information asymmetry and people will make decisions on that info, thats the entire premise of the market.

People with inside knowledge use leveraged trades (options) to maximize their gains. The volume of options traded is way lower than you probably imagine. Most options trades are fairly standard things -- it's mostly pattern recognition.

And they're still doing this with really old tech (I hope you enjoy AS400s) and spreadsheets because there's no willpower to investigate these things for real. You could use modern computers and tools to do a lot of the job and spot patterns (the kind of stuff Nanex likes to do) and bring them to the intention of investigators but they don't do that.

It's old school investigative work otherwise and most criminals are super dumb. Like all of a sudden a housekeeper in Romania is trading several hundred thousand in options the day before some news...

> It's old school investigative work otherwise and most criminals are super dumb.

Selection bias, since you don't know about the criminal you didn't catch.

Really shocked the SEC doesn't cut Nanex/Eric a check to provide this sort of data directly to them.

Really though? SEC and FINRA are cush jobs. If you play politics and make it high enough you can golden parachute out of there. There isn't the political will to give these agencies any real teeth.

They go after the low hanging fruit because it's easy and won't make waves. It's practically their mandate. Catch idiots and keep the mafia stuck in OTC and it's a job well done. It's like civil service but with better pay and zero accountability.

Everything's fine, nothing to see here.

Rage intensifies.

Good analysis, not sure why you got down voted by the hn police

Looks very clearly like insider trading. It's obvious that the SEC will get involved, so why will someone be so stupid?

It's not very clear though, the investor could've just as well overheard a conversation. If they didn't commit a crime, why should they be scared of the SEC?

If you overhear and know it's inside information it's still illegal to trade on it. And if you have a loophole they will still drag you through the mud.

My understanding from dealing with this in a prior life is that the SEC will investigate these outliers as standard practice and 1) try to connect the dots between the buyers and any LNKD insiders, and 2) ask the buyers to show all of the due diligence and work product that went into deciding to make the trades. If you were the buyers and knew anyone with prior knowledge of the deal and couldn't document #2 in great depth then you are likely screwed. Presumably, anyone working in law or finance would know that this is standard practice and stay far away. Given how volatile LNKD's price has been over the last year, I could see these being legitimate trades (on the other hand, I actually took the other side of some Nov $160 covered calls and felt great about the hedge until this morning). Also keep in mind that these kinds of ''crazy'' trades are frequently placed as part of a larger more complex hedging strategy with net upside much lower than the numbers mentioned in the article.[1]

[1] https://en.wikipedia.org/wiki/September_11_attacks_advance-k...

A coworker told me that his brother once bought a large amount of stock in some company that had been down for a while because he "felt good about its future". He had (allegedly) no connection whatsoever to anyone in that company. The next day an announcement came out that the company was being acquired for a huge premium. Ended up having to deal with the SEC. He eventually came out in the clear, but it was still a huge hassle and caused him a lot of stress.

oh that's interesting.. kinda nuts if that happened to you.. one day you are like, "man I'm so smart!" then the next you are like.. "oh man, I'll just give the money back to avoid getting investigated by the feds..."

Sounds like a casino alright

Tell me, why did you bet on 00?

All it would take is for someone in on the deal to be having dinner with an associate and saying just a little bit too much. The walls have ears when you're dealing with stuff like this.

According Wikipedia, the firms advising on the deal, Qatalyst and Allen & Co, have about 50 and 175 employees respectively. It's far, far easier to keep things under wraps at places like that.

When do insider trader laws kick in? I seem to remember that acting on information you overheard is legal; is being told info directly from the insider (if they don't benefit) also illegal?

Let's also recall that Congress is exempt: http://www.forbes.com/sites/kylesmith/2011/06/01/insider-tra...

In theory yes, the insider has to receive some sort of personal benefit for it to be illegal. In practice, however, the bar for "benefit" is very low. It's a bit of a legal grey area.

https://www.bloomberg.com/view/articles/2016-01-19/justices-...

In the clearest case, insider trading laws kick in when you bribe an insider for information.

Acting on something you overhead, hiring a private investigator to see who's having lunch with who, etc, are all fair game; paying for an advantage in the market is not.

It turns out to be way more complicated in practice though. It looks like the SEC just settles things on a case-by-case basis.

Wasn't there a big LinkedIn hack recently? Would it be ridiculous to think these two are related?

The hack was in 2012. The data recently went up for sale, dredging the hack back to the top of the news.

So to play devil's advocate, a relationship between the data leak and acquisition?

Why?

Buying an abnormally large amount of short dated, out-of-the-money options is a textbook (and extremely rookie) insider trading move.

I'm having a hard time knowing they are simply a rookie. They prices the options right and bought in the last five minutes, so they at least know the type of resistance they'd encounter from algos.

It's a rookie trade because they left a bulldozer trail of evidence behind.

I just want to add this bit of Finance Theory / Econ 101 to the mix, it's interesting:

Markets function better (or really, they function at all, it's the definition) when prices are what they should be.

Trading on insider information moves prices in the direction that they should be moving. The flaw in the pricing is due to the secret that's being kept, and the secret is being kept to protect insiders, not the public.

So, as a counter example to "the tragedy of the commons", trading on inside information is an example of positive externalities surrounding trades with negative "internalities".

http://www.bloomberg.com/news/articles/2016-06-13/anatomy-of...

another look at this trade thinks its part of a short vol trade - this kind of trades lose money when the price moves too much too fast.

the only way this structure would have made money if there was no announcement about anything - no announcement that there was an acq, or wasn't an acq, or there was any discussion about an acq at all.

I really doubt it's someone in the banking or tech sector. Anyone with the a glancing familiarity with the stock market knows that's the easiest way to get caught.

That's why it seems more likely (to me) to be tech sector than finance. Nobody in finance would make this kind of move. A LinkedIn or Microsoft employee might.

Insider trading is NOT illegal; http://cnbc.com/id/43471561

What's really weird is that's way too small a profit to risk being flagged for insider trading.

Unless that's all you can afford

Corruption and allegations of insider trading amongst the banking sector? Surely not! Who would have thought?

I think it is obvious that this trade did not originate from someone inside of the banking sector, else it would have been constructed in a "legal" way.

The linked in 2012 breach started getting posted everywhere in weeks previous with high visibility. I don't believe it to be related, but I am sure someone may.

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