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Insider trading

  • Category :
  • the market
  • August 4th, 2007

    I was reading an article from August’s “Market” magazine about insider trading. It talks about how insider would try to buy the short term option of a stock days before the buyout news is announced, caused the open calls to surge. And how SEC uses this information to track down the suspect.

    Suppose I don’t have insider information, and suppose I accept that market does not have perfect information and someone knows something I don’t. And further suppose that insider trading exist. One could easily find out when the trading volume on a particular option spikes out of proportion with its underlying stock and piggy back on the information someone has. The information that it uses is all public (historical open calls volume and trading volume of stocks) and the code would be exactly the same as that you would use to detect if a retail site updated an item with the wrong price (say a flat screen for $160 instead of 1600) due to the cyclical nature of volume during the day and reporting(holiday) cycle.
    But how do you filter out the noise from “stupid money”? The one that’s caused by those stupid stock spams. I wonder if you can deliberately got on to the list of those stock spams. Then you can apply a negative list to the execution. I only need to examine the the short terms near the money options for companies with market cap less then a certain amount (i.e. G.E is not going to be a take over target because of the capital required). The list HAS to be shorter than the cardinality of a retail catalog!

    sucks that the credit market dries up recently. The takeover, hence insider trading are going to be less likely. Better spend time to ponder something else.

    Entry Filed under: the market

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