Sunday, August 4, 2013

The bad guys won one this time...

Jeff Matthews has a funny blog post about how someone bought call options over 760 thousand shares of Booz Allen Hamilton (NYSE:BAH). The strike price for these options was $20.

This is an enormous trade - over seven times the open interest in all options of all stripes for BAH.

The next day comes a headline:
Accenture in Talks to Buy Booz & Co.  An Acquisition Would Beef Up Strategy and Operations Consulting
As Jeff Matthews tartly notes Booz & Co is not the same company as Booz Allen Hamilton - they separated years ago.

And so our want-to-be insider trader has blown his dough - 760 thousand times 85c worth - or a little over 650 grand if you include brokerage. This was a costly error, but less costly than the criminal trial and almost certain conviction for insider trading if our imbecilic crook had been right. I mean he didn't think he could get away with that did he?

As luck would be Booze Allen Hamilton "crushed" earnings estimates. Here is the stock chart:

And so our asinine aspiring insider trader has made quite a decent profit proving once again that it is better to be lucky than good on Wall Street.

Notch one for the bad guys.

In my darker moments I imagine there is enough inside information around that someone knew about both the Booz & Co takeover and the Booz Allen Hamilton earnings beat and were Machiavellian enough to know they could trade this information aggressively and not get pinged for insider trading. But that couldn't possibly be true... could it?



Anonymous said...

It would suffice if he knew about earnings and did not make a mistake. Occam and all...

Unknown said...

SEC doesnt blink and eyelash at options activity( recall a few days before 2001 massive puts on airlines still a mystery as to who)for the simple reason being that with options highly leveraged aspect one can control many shares cheap so a third party can be brought in for a few thousand dollars say somebody's crazy aunt Mary in a cellar,e.g. breaks the trail.

This activity is rampant. I scan a few hundred unusual options activity each day with a few other criteria that must be met and find more than a dozen i can prove have 80% hit rate as i archive them on Stocktwits.

Actual buyouts are rare but I have spotted them as well CPB LEAP recent ones I have posted pre announcement but in those case the buying company does all it can to protect itself from insider exposure is why these scans have a certain profile yet a few still manage to slip in and that is easy to detect.

Anonymous said...

Still a big win for Booz investors, they deserved this.

Not Ziva David of NCIS said...

Nice follow-up to Jeff's blog.

Perhaps Edward Snowden hacked into BAH's IR press release cache or something a little early.

Better trade would have been to hack into Uralkali's, however.

This lucky options trader is probably going to get some SEC attention over this lucky trade. That's my bet.

They rung up some GMCR IT guy last week for being right before earnings too many times for 3 years in a row.

Anonymous said...

As an options market-maker I can say first-hand that this activity is rampant in the market. This particular stock was tied delta-neutral to stock (so the call buyer sold some stock, probably about 300,000 shares vs. ~8000 calls), but is still a big winner for the buyer.

Another issue that has made this activity even more enticing is the US options exchanges policy of aggressively rolling out more and more extremely short-dated options. These weekly options (and some exchanges are pushing the SEC to approve daily-listed options) are absolutely explosive when coupled with inside information.

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