Thursday, March 4, 2010

**UPDATE: MDVN Insider Trading Claims

* Update

CORRECTION: Zero Hedge published the article using Bloomberg snaps - this was not published by Bloomberg as I originally posted.

Orinal Post: Click Here.

This is a quick update to the blog yesterday which has gotten unbelievable attention.

Quick summary of yesterday with update to follow:
MDVN was trading 12.92 down $27.33 or 67.9% yesterday. IV30™ is down 175 points or 68%. The LIVEVOL™ Pro Summary is below.


The news, obviously, wasn't good - the drug candidate for treating Alzheimer's disease proved largely ineffective. The full Reuters Key Development from Livevol Pro is included (click to enlarge).

The interest came from this:
Zero Hedge reported ~16,000 Apr 40 puts were purchased yesterday right before the close for $14 - now worth $27. That's $13 x 100 x 16000 = $20.8 million.

I claimed the Zero Hedge report was very good (and fast), but was actually missing some info.
4200 + 5200 + 4200 + 4200 = 17,850 right on market close for $23 million.

BUT THERE'S MORE: These were spreads - they also sold calls @ $17.60! While the put purchases are suspicious, the other side of the trade makes the whole spread obvious.

2535 + 3169 + 2535 + 1500 = 9739 calls for $17,140,640 profit.

That's over $40 million in probable insider trading. The Time & Sales Snap is beow (click to enlarge). Note the time - 4pm EST --> i.e. market close.

And the update:
The Zero Hedge article and this blog were challenged by some other services that these trades were not necessarily "cheaters." Two arguments have surfaced:

(1) Someone might have sold both calls and puts.
(a) No, the puts traded on the offer of an 0.80 wide market, they were purchases.
(b) There isn't a broker dealer on this planet that would allow anyone (market maker, pro, whatever) to sell 18,000 deep puts in $35 stock (see number 2 below for relative scale - i.e. how big is long 1.8 million shares?).

(2) It might have been a hedge for long stock
(a) Based on Yahoo! Finance:
Largest direct shareholder is David Hung - 1.4 million shares.
Largest institution is Barclays - 1.8 million shares (not mutual fund).
This was for 2.6 million shares. Even if someone had options that don't appear on insider rosters (which is possible), 2.6 million would be enormous relative to the numbers above. It's not gonna be just a guy. It's gonna be someone with unique knowledge about the company.
(b) A hedge is not a position flip. A hedge is usally < 50 delta; this is a position close, NOT a hedge. It's ~100 delta with calls and puts.

I hope ths turns out to be nothing - there is always a chance coincidence is just that, but I doubt it.

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