Friday, December 20, 2013

Responsys (MKTG) - Did Someone Use Inside Information to Make 2000% in 15 Days on a Takeover?

MKTG is trading $27.12, up huge on a takeover from ORCL. The Symbol Summary is included below.

Provided by Livevol

Responsys, Inc. (Responsys) is a provider of on-demand software and professional services. The Company’s offering, the Responsys Interact Suite, provides marketers with a range of integrated applications to create, execute, optimize and automate marketing campaigns across the interactive channels, such as e-mail, mobile, social and the Web.

So, this is one of those notes I don't like posting, but feel compelled to.  There is evidence of potential misuse of private information before the takeover news today.  There is some mitigating evidence as well.  I'll just show the facts and let you decide.

But here are the unavoidable facts:
1. Dec option expiry was today.
2. That option bets made, all expired today.
3. The takeover announcement was today.
4. The bets required that the stock break an all-time high today to make money.

That ain't good...

First, the news:

Oracle has announced an agreement to pay $1.5bn in cash for marketing technology company Responsys, in its latest bid to become a more substantial force in the fast-growing cloud software business.

Source: Financial Times (FT) via Yahoo! Finance; Oracle to buy Responsys for $1.5bn, written by Richard Waters.

Alright, first, let's look at a tiny snippet of the Stats Tab, below:

Provided by Livevol

We can see the firm averages 161 calls traded in total per day, and that includes some unusual "stuff" I'm about to demonstrate. In reality, that average is more like 100 calls traded a day.

Next, let's look at the action on 12-5-2013 (so 15 days ago).

Provided by Livevol

That's a chart of the open interest (OI) in the Dec 20 calls for MKTG.  The OI went from 23 to 789 in a single day when 777 of those calls were purchased.  keep i mind, the firm had averaged ~100 calls TOTAL across all strikes until then, and then we see nearly 8x that amount in one line on one day.

I have included the Options Tab from that day and some of the top trades, below.

Provided by Livevol

Note that the calls were purchased for ~ $0.45.

And today... Drum roll please...

Provided by Livevol

Those $0.45 calls are now worth ~ $9.70.  The profit would be:

($9.70 - $0.45)*100*777 = $718,725 on a $34,965 bet for a 2055% gain in 15 days.

OK, that looks bad... But, I did say there was mitigating evidence...

Check out that OI in the Dec 17.5 calls.  It's actually larger than the Dec 20 calls.  that interest looks short to me.  Now the trades seem to be by different entities as they were not entered as a spread and happened on different days and in different sizes.

Is it possible that this was the same bet, a short call spread that was a 50% loser?  Yes, it is.

Do I think this is two different traders, one that got burned and one that made 2000%?  Yes, I do.

This is trade analysis, not a recommendation.

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