Tuesday, June 2, 2009

How to Trade on Insider Information and Get Away with It

From Long or Short Capital:

We previously published a brief for investors on How to Hold Based on Insider Information that resulted in a lot of our readership profitting substantially. But correspondence we have received from some readers in jail indicates that some investors are unclear on a second important part about insider trading, the often neglected “getting away with it” part of the buy, sell or hold.

  1. Have a position in a company which issues tradeable public securities (stocks, options, bonds, etc).
  2. Obtain material non-public information from insiders of this same company.
  3. Buy, sell, do not buy or do not sell any of this company’s tradeable public securities.
  4. Send a letter to the SEC detailing at length the ways in which you are using material non-public inforomation to profit. The at length part is crucial so pretend like you are writing a doctortal thesis that you have to defend against people who will never read it because it was too long and too boring.
  5. Profit.

Note: You might recognize Step 4 from How to Commit Financial Fraud and Get Away With It

How many commentators read the story of Bernie Madoff and Harry Markopolos' dogged attempts to get the SEC to shut the fraud down without understanding the strategy that could be developed from the fact set?

We are fans of Long or Short Capital and not just because of their mission statement:
At Long or Short LLC, we leverage our superior intellect and extensive investing experience to recommend explicit Long or Short positions and related abstract trades, which may or may not be possible with real world financial derivatives. We use science to improve the lives of the rich. More About LoS
Or their innovation. From our post "How many Nobel Laureates Does it Take to Make Change...And: End of the Universe Puts":
...See "Gaming the System: Are Hedge Fund Managers Talented, or Just Good at Fooling Investors? " from Knowledge@Wharton.

If you've followed this story:
Large Hadron Collider Sparks 'Doomsday' Lawsuit
Large Hadron Collider Won't Destroy Earth. Of Course Not

The markets responded;
From Long or Short Capital:

July 2008 LHC End of the Universe Puts
...That is why Long or Short is now offering LHC End of the Universe Puts. It’s a simple put option wherein the buyer retains the write to sell the Universe at a strike price of “Existing”. Based on our Black-Holes model used to value all “end of the world” options, the July 2008 vintage options are currently priced at $20....
But because they have their ear to the street [and their mind in the gutter? -ed]:

Melissa Moody’s Ratings Alternative (MBI)

From Long or Short Capital:

...My ratings will be simple:

  • BFFAE (Best Friends Forever and Ever)
  • BFF
  • BFFLAF (Best Friends For Like Almost Forever)
  • BFFBAS (Best Friends Forever But Also a Slut)
  • BFFBIHH (Best Friends Forever But I Hate Her)
  • Whore


Previous Rating: BFFAE
New Rating: BFFBAS

Ratings Rationale: MBIA used to have a good little thing going. Yeah, like not everyone thought she was totally hot, but everyone was like “Wow she has a good little thing going”, she was funny and nice, and who doesn’t like funny and nice? Not Melissa, I’ll tell you that. And she was a go-to girl anytime a friend was jammed up with boy problems and needed ice cream.

But then she changed, and we all saw it happening. She wanted to be totally hot and started hanging out with guys out of her league. Yeah she looked great, but the diet and the clothes and the whole lifestyle changed her. Rumors started about what she was doing behind the scenes at muni parties and at CDS keggers....MORE