Wall Street Journal: "NEW YORK'S ATTORNEY GENERAL and the SEC are investigating suspicious trading in Dow Jones stock and options prior to the disclosure of News Corp.'s bid."
Options activity was indeed heavy in the days preceding the Tuesday bid for Dow Jones (DJ) by Rupert Murdoch's Newscorp (NWS). I missed seeing it.
There was a very odd set of circumstances which led me to not to run my options screener on Monday. I had gone down to Cape May, NJ to kind of rescue my wife from what was one of the most kookiest incidents she's experienced in a long while - being stuck between 2 other feuding women at a church women's retreat. One had threatened to kill the other. It was out of control stuff.
So, that's the real reason why I was in Cape May, NJ Monday and completely missed what was going on in the market. I'm keyed in to most rumors via hedge fund sources on both coasts along with various premium market intelligence services and my own home brewed stock options screener. I have to admit, Dow Jones (DJ) did not pop on to my radar because it was shut off on Monday, or I surely would have jumped in. I apologize for letting you down and not coming across this trading situation which would have been lucrative for all of us.
The Journal story above reports on rampant speculation in the May 45 calls. DJ had not been in the 40's for years; you just don't buy those calls unless you know something big was going to blow. The brazenness of the original out of the money buys at the 45 strike amazes me. It's no problem for folks like us to jump on the bandwagon once the influx begins, but the folks who initially picked up the 45s on their insider information are pretty dumb for choosing a strike that would stick out like such a sore thumb. I'd have gone with in the money calls, but in all of my years of trading and even reporting I've only received one insider tip. It was back in the early 90's when the phone rang in the WBBR newsroom and someone said a plumbing related company would be bought and hung up. We laughed, did some checking, but didn't even report the tip, much less trade the tip, but a week later the company was bought for a 40% premium.
As I recall the penalties for this sort of thing are 1. massive legal fees to defend yourself once they find you (and they will unless it was another group trading in Pakistan), 2. a return of all ill gotten gains and 3. a hefty fine 2 to 3 times the size of the ill gotten gains, 4. the potential for jail time, 5. being barred from trading.
This incident with Dow Jones (DJ) options highlights why I've been keeping an eye on options volume and why other services do it as well. The stark reality is that there are folks out there who are the 'haves' - the 'havers' of information that most of us are not privy too, but they leave their fingerprints all over in the options market when they act upon their information which can give us some clues as to what's going on. Lately, however, there have been dozens of rumors that have hit the options market, spurring heavy volume for a day or two - and then the activity dies. The NY AG and SEC should also look into what's become a rampant phenomenon of seemingly false rumors.
There's been a lot of junk coming out of the rumor mill, but it is tradeable junk and you need to have discernment and discipline. Take the AMR rumor 2 weeks ago. Come on, British Airways (BAB) buying American? LOL. But applying a different set of rules, I jumped in scalped a 20% gain and jumped out. The options then promptly pulled back as the rumor died. Yesterday, Yahoo (YHOO) soared on the report Microsoft (MSFT) would buy it. Really?? Bill Gates would buy that company? LOL again. I didn't even bother with the calls, I just bought puts against the notion of a $50 bln good will laden buy of YHOO, and sure enough the stock is already back to just above $30. I'm going to hold for a move back to $28. In other words, as the bull market gets to dizzying heights, forces out there have been manipulating individual names on takeover mania - don't fall for most of the stuff that comes out. I've been using it for quick trading opportunities and then taking a profit. It remains to be seen whether any of the recent rumor names will make it to prime time with real news and huge Dow Jones option like returns.