Twitter Stock Jumps Nearly 8 Percent on Fake Bloomberg News Post | Hacker News Reader

Twitter Stock Jumps Nearly 8 Percent on Fake Bloomberg News Post

recode.net

45 pointsprostoalex54 comments

Dumb question: is buying a domain, posting a hoax story about a company on that domain, and then executing trades to take advantage of the fluctuation in that company's stock price illegal?

It is a pump and dump mixed with fraud plus likely trademark and copyright violations imitating Bloomberg. It is certainly illegal.

EDIT:Fixed a typo.

First you pump then you dump. :)

Oops, typo. Although I am curious what a dump and dump would accomplish...

Here is one example:

http://www.cnbc.com/id/100630626

http://www.ibtimes.com/why-did-gold-crash-april-2013-compute...

http://www.cnbc.com/id/100665045

If you had a bunch of puts, sufficient dumping might be enough to create a panic, and then the puts would be worth more than the loss from dumping.

If you short the stock I believe the dump and subsequent dump would be in your favor.

I'm not sure, I wonder if The Onion has ever affected stock prices.

Journalism is generally exempted from securities regulations (if they are not trading). Comedy the same I presume.

I guess this explains the disclaimer in all of Fool.com's articles. The author of the article tends to disclose if he/she holds any positions.

It's actually a legal requirement as of a few years ago, for interests to be disclosed in the case of endorsements, or critical pieces on competition. If that interest isn't already clear.

https://www.ftc.gov/tips-advice/business-center/guidance/ftc...

Big difference with this scenario though as this article had an intention to deceive, the onion makes it very clear it is satire.

Yep.

Yup.

That's not even necessary. Look at Yelp's recent fun times. Nothing like a good unsubstantiated rumor to artificially inflate a stock price.

I'm curious if the majority of the trades were executed by humans reading it or essentially algorithms that scrape the web for articles. Also, if you intentionally released a bogus story and benefited from the rise, you bet it's illegal....and they (SEC) will almost certainly find you...

Hate to burst your bubble, but the SEC is probably one of the most under funded government organizations there is. They are going against billion dollar companies and individuals, and honestly are sort of a joke.

Actually, the SEC has many sophisticated tools. and on events like this, greater attention is received. I utmost assure you from personal knowledge, they will find you and they are most certainly not a joke. Billion dollar companies and individuals have nothing to do with it, they have no immunity or some secret hiding place. More often the bigger guys raise flags much quicker and are easier to investigate. (Usually larger amounts of money)

They probably disproportionately go after individuals, it is much easier to force an individual into a plea bargain situation where they get a positive result, than it is to go against a multi billion dollar corporation who can continue making money while defending a legal case.

At least the very short-term trades are executed by algorithms and they are susceptible to making mistakes. What the article fails to mention is that the rise was quickly reversed once enough people actually read and analysed the news and started shorting the stocks. Right now it is essentially trading where it was before the news hit.

The article says it is trading 3% higher overall. That's not an insignificant gain off the back of fake news.

It was trading around that level before the fraudulent article.

The stock opened virtually unchanged but started trading higher right after the open and had already gained around $1.1 by the time the news hit. When that happened, it spiked a good two additional Dollar, but lost around $1.9 of that over the course of the next minutes. Interestingly, someone bought 1700 calls 3 minutes before the event.

Can you ELI5 'bought 1700 calls'?

Calls are a type of option. Basically you buy the "option" to purchase a stock at a certain price.

Say a stock is at $10. You buy an option, which is a contract, that allows you to purchase that stock for $15 anytime within the next 3 months(which is when the option contract expires).

Now one month later the stock is at $20 per share. Your option you bought that allows you to purchase the stock for $15 (which is called the strike price) is still good of course. You may now go purchase 100 shares (a standard size for 1 option contract) at $15 a share and immediately sell all of those shares for $20 a share. Instantly making $500 net.

In practice, most option contracts hit their expiration and are worthless. They are "out of the money" options. Basically if that stock went down to $8 per share, you would not "exercise" your option to buy it at $15, because that would be more expensive than market price...and you would let it just expire.

There are a ton of strategies with options, from highly leverage speculative investing to using them as tools to hedge positions.

So if somebody bought 1700 call options right before, at which time they were "out of the money", and then sold them at the peak twitter high price of today...they would have made around $255,000 if they choose to exercise the options. But that's assuming they bought at a strike price that was the same as the market price at the given time...around $37/share. All that money for a relatively low upfront investment risk.

The 1700 calls could be related, or could have been stupid luck. Call options are fairly common and that person did it at the right time. The real question is, did they exercise the options or sell off the option contracts (which is what is done most of the time) and actually make all that money. If so, there might have been a little more going on than dumb luck (fraud).

Unless you're outside of their jurisdiction.

You can't make money from this and be outside their jurisdiction. To move money through the US stock market you have to have a brokerage account that follows the rules (and fines) of the SEC.

Exactly. Does not matter what country you live in. If you happen to live in a country with no extradition treaty, you will never be able to enter the U.S. again without being arrested and it's highly likely you will be arrested in most countries you step into.

The days of hiding in the Caymans or in Switzerland are over.

That isn't necessarily true. It isn't uncommon for stocks to exist that are traded on local exchanges that equal a set number of shares on a foreign exchanges. They vary by market, but they are called ADRs in the US. It is doubtful that any of these exist for a stock like Twitter, but it would be an easy way to benefit from American stocks without having an American brokerage account.

The craziest thing, is this stuff happens all the time. People are 'gaming' the market, naked shorting, front-running, insider trading, the SEC has no chance. You have to imagine the guys who built this fake site dropped some cash having it done. Just imagine how much money they made when TWTR shot up (http://i.imgur.com/AXYEebF.jpg).

Yay for automated trading! This is exactly the kind of thing that everyone says is the danger of automated trading with NLP.

Automated trading likely made the problem worse, but I have to imagine it started with a human. Imitating the visuals of another website on another domain is a trick designed to fool a human as it would be trivial for a machine to know the difference.

When scenarios like this happen, who actually loses money? Obviously some person/firm made a lot of money on this story, but there has to be an entity on the other side who also lost a lot right?

As the stocks' demand rises, the price goes up. The price going up will cause others to sell, many have a sell limit set so the trade executes automatically.

The buyers who bought it going up thinking it will keep going, or that the article was valid, are the losers. The price will fall back down once the article is proven to be fraud and those buyers just lost a good amount of basis points.

The ones who held the stock before hand and sold as it reached the peak are the winners.

This second group will be the ones the SEC look into first.

The people who buy at an artificially and temporarily high price, mainly.

Market has already corrected.

An all knowing, or at least efficient, market would have rejected obvious spam instead of working itself into a frenzy.

I don't think the efficient market hypothesis claims that stupid people can't exist.

The EMH is, as far as I can tell, a tautology. It makes no real claims.

The article was an obvious piece of spam/trollmanship. It was easily verifiable as being a fake Bloomberg article, yet some probably believed it was real and made trades at prices higher than what was transacting before the article appeared.

Not an expert, but I'm reasonably certain this is evidence in favor of stronger forms of the efficient market hypothesis. New possible information was accounted for in the price effectively immediately, in both directions without bias.

We know that the US equities market cannot be an instance of the strongest form of the efficient market, so we certainly shouldn't be surprised that new information causes changes in prices even if we believe that the US equities market follows weaker forms of the efficient-market hypothesis.

What exactly was the new information here?

It was a completely fabricated article made to look like it came from an industry source. The article has no bearing on Twitter, yet the shares traded up 8% immediately after it came out and fell back down as it was realized the article was farce.

If any new information was created, it's that whoever is trading Twitter stock (and by extension, most other stocks) trades on false information at least some of the time.

My strong hypothesis is that most trades are based on false information most of the time.

New piece of information A - "Twitter might have got a bid buyout"

New piece of information B - "That last story was completely fabricated".

I'm not EMH believer but to claim that any version but the strongest (which is known to not apply) was implicated by this story is just misrepresenting what the EMH says.

A (which is arguably not real information) occurred simultaneously with B (actually, I might argue B occurred before A) as the fact that the story was fabricated was evident in the previously unknown and unauthenticated URL which was used to retrieve the "information".

The fact that the information is not real is immaterial to the EMH in any of its forms.

The strongest form (which is not applicable here) would indicate that the price jump shouldn't have happened if it was real the people who knew about that information first, could use it to make money and thereby naturally adjust the price of the equity so that there was no "jump".

Given that the strong form CANNOT exist in the US equities market, you get situations where new information is allowed to cause price movements as long as it happens quickly and in an unbiased fashion, which this did.

Think about it this way, the first piece of information is "Somebody says twitter is being bought out". That is information that should change the price, and that is the headline. "Anyone who says twitter being bought out is full of crap" should also change the price based on the 'reputation' of the people making the statements.

Regardless of order those price movements are central to the EMH, not contradictory, and they did in the order we would expect in such a way as to back up the weaker forms of the EMH.

So whether you buy the EMH, think even if it exists it doesn't matter, or think it is complete nonsense. This behavior is not evidence to back up your stance. If you think it is, you don't understand the EMH.

>The fact that the information is not real is immaterial to the EMH in any of its forms.

Hmm, really? I guess I really don't understand the EMH then. Can you give me a formulation of EMH that doesn't depend on information?

I tend to think that the EMH is a tautology and makes no real claims. It's a novelty.

Back to our argument though, you're still disregarding the sequence of events. The reputation of the information precedes the information itself. It was possible to know to disregard the content before actually seeing the content.

You keep claiming that the content came first, when that is strictly not the case.

I will accept that many traders treat any text they come across as gospel and blindly follow it. I'm sure there's a continuum to someone who first verifies all information they depend on in a trade.

I'm not making myself clear. The EMH does require information for any of its formulations. It doesn't require the market to magically determine what is "real" vs "fake" information and disregard "fake" information. In fact quite the opposite.

The EMH is based on the idea that lots of people react to incorrect information all the time, but that just as many are working on correct information such that the aggregate is efficient.

That is precisely what happened here. Some people reacted incorrectly to new information (ie they believed it) others reacted correctly (ie they saw it was nonsense) and the market in aggregate self corrected. I'm not sure that the correction falls into the semi-strong form as I'm not sure what the boundaries for speed of market reaction are.

I think it is smart to be skeptical of the EMH, lots of people are for very good reasons, but this event is not evidence one way or the other.

A was simultaneous with B only in retrospect. It requires one basic skill (reading) to comprehend A, it requires a variety of skills (understanding of domain name system, technical expertise, knowledge on how to do lookups of a domain owner) to comprehend B.

If article A had a large banner saying THIS STORY IS FAKE, you could argue A and B were simultaneous.

One must have the domain name (and in fact, the entire URL) before one can access the content (A).

So, B actually came before A (assuming the article was only accessed over the Web [eg. not also handed out in print on the floor of a prop trade desk]).

But somebody likely made a lot of money on it.

Most likely shorts, they probably saw this spike and knew it was coming back down soon.

So they would start shorting it once it starts to rise? I thought perhaps someone holding the shares would start to sell at maybe 5% and then buy back in on the way down. But with shorting I guess you don't need the capital outlay of owning the shares in the first place.

Consider the following short-selling example. A trader believes that stock SS which is trading at $50 will decline in price, and therefore borrows 100 shares and sells them. The trader is now “short” 100 shares of SS since he has sold something that he did not own in the first place. The short sale was only made possible by borrowing the shares, which the owner may demand back at some point.

A week later, $SS reports dismal financial results for the quarter, and the stock falls to $45. The trader decides to close the short position, and buys 100 shares of SS at $45 on the open market to replace the borrowed shares. The trader’s profit on the short sale – excluding commissions and interest on the margin account – is therefore $500.

Copied from: http://www.investopedia.com/terms/s/shortselling.asp#ixzz3ft...

My query was really - if you short it in advance wouldn't it require the price falling below it's starting price for you to profit. It seems that this was intended to raise the market price in the short term, therefore only shorting it on the way up would make you profit when shorting. Also it did not fall below the original price when it corrected.

Reply on news.ycombinator.com