Ask HN: Is shorting a competitor stock legal before launch?
So let's say you're launching a product that you feel rivals an incumbent and may cause their stock to dip in the following months.
Is shorting their stock trading on insider information?
Is shorting their stock trading on insider information?
If you (or your spuose, family member, friend, gym buddy, whatever) work or worked for the competitor, it could be insider knowledge. I think that's not your problem.
If your product could be construed as being an attempt to lower the stock price of your competitor, and not a good faith attempt to compete, then I think you'd be committing fraud.
Consider ... your product launches, your competitor's stock falls, you make money on your short bets, your product then fails.
Can you prove in court that your product's failure wasn't just an attempt to make money off your shorts?
Again, I'm not lawyer: talk to a real one.
Regarding the legality, I believe it would be difficult to argue that your knowledge would be considered "material" to investors - given that there is no guarantee that your product is going to even affect an established competitor, let alone eat their stock price. Your confidence doesn't translate to empircal evidence of non-public material knowledge.
Regarding the financial side, just keep in mind that it takes a long time for investors to move on something like this. Months, likely. It will take time for your product to gain traction, then it has to hit the eyes of the competitor, then it has to hit the eyes of the investors of that competitor, then it has to be convincing enough for that investor to change their established position. If you're really confident, and have money to spend, it appears to be an option for you.
However, the biggest sentiment I found was: "Talk to a lawyer, not people on the internet when your company and/or financial life is on the line".
Because you shouldn't put your money on the line based what I, or other internet-goers say.