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Who needs the lottery when you have insider information???
Old 05-02-2007, 10:50 PM   #1
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Who needs the lottery when you have insider information???

From bloggingstocks

I was sitting at my desk when someone said look at Dow Jones & Co. (NYSE: DJ). Murdoch's News Corp. (NYSE: NWS) just made a bid. A couple of keystrokes later I saw the stock was up about 50%. I then heard the comment everyone always makes... "I should have bought that one yesterday." Thanks, but a little too late.

But then I looked a little further and it seems like someone has.

A look at the open interest indicates that there are 4,518 contacts open on the September DJ 45 calls (DJII) and 3,464 options traded yesterday. In fact, I am showing there was no volume on that option strike since February 1, and then yesterday there was suddenly 3,464 contracts traded and today the stock is up 50%. Interesting.

Those 3,464 contracts were traded at 35 cents or less. Each option contract represents an interest in 100 shares of stock. So if they were bought, that is a $121,240 bet the stock was going to go up. The stock is trading in the area of $55 so that means those 45 calls are worth over $10 each. I don't know about you, but $0.35 to $10 literally overnight looks like a nice return to me. Too good to be true. That $121,240 investment is now worth $3.4 million. If that 3,200% rate of return isn't good enough, check out the 5,000% on the June 40 calls. There were 641 contracts of June 40 calls (DJFH) bought at 0.30 for $19,230 yesterday which turned into $961,500 overnight.
So, is it possible to follow the "smart" money by looking for these volume anomalies?

And also, if you think you can beat these kinda odds, feel free. But unless I am given this sort of luck, I'll stick with indexing...

Olav23 is offline   Reply With Quote
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Re: Who needs the lottery when you have insider information???
Old 05-03-2007, 02:18 AM   #2
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Re: Who needs the lottery when you have insider information???

Someone is probably going to jail or will have to disgorge and pay a fine. The SEC monitors this sort of thing. Someone knew what was about to happen! That/Those persons had better have a good cover story.

Insider info is a gross problem that happens all the time. The more careful opportunist does not get greedy... they make sure there are no ties/tracks to the company and go long for a smaller amount of stock! You had better believe that the market is not absolutely fair. People cheat! It is when they get really greedy and/or careless that they get caught. This person may have been both. Flipping options at the last minute is a sure sign. That person had better be flipping other options contracts regularly for similar amounts of money. If this was a one time occurance and they typically do not trade in that way (for a large amount), they will be investigated.


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Re: Who needs the lottery when you have insider information???
Old 05-03-2007, 05:33 AM   #3
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Re: Who needs the lottery when you have insider information???

Originally Posted by Olav23
So, is it possible to follow the "smart" money by looking for these volume anomalies?
Maybe possible but I can think of a lot of instances where there was options activity/buzz but nothing materialized. For instance, how many times now in the last six months has there been an unsubstantiated report of Dow Chemical being bought/split up/strategically allied?
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