Friday, May 9, 2014

* Rocket Fuel (FUEL) - Stock Collapses; Did Someone Cheat to Make 333% in 24-hours?

FUEL is trading $20.17, down 27.5% with IV30™ down 26.7%. The Symbol Summary is included below.

Provided by Livevol

Unfortunately this is the second such note of this type in just a few days.  But, I do believe, again, that someone with insider information profited on an earnings release.

(Older Research Post Here: Are Options Used to Cheat on Takeovers?)

That is my opinion. I will present the facts.

For the prior post on POWR, you can go here:
PowerSecure (POWR) - Stock Collapses 60%; But Someone Made 1400% in 7 Days. Cheater?

So FUEL is down huge because of earnings, which means there was an event to bet on, which further means that a claim of insider trading (or any impropriety) is more difficult to prove (and I will not prove anything with this post).

Here's the news:

After the bell Thursday, the California-based company reported first-quarter revenue of $74.4 million, less than $76.21 million expected by analysts surveyed by Thomson Reuters.

Meanwhile, guidance for its second-quarter revenue was between $88 million and $92 million and short FactSet expectations of nearly $102 million

Source: Why Rocket Fuel (FUEL) Stock Is Crashing Today, written by Keris Alison Lahiff.

Let's start wit the Stats Tab.

Provided by Livevol

FACT #1: We can see that over the last 90 days, FUEL has averaged 273 puts traded a day on all strikes and all expiries in total.

Now, let's turn to the Options Tab from the close of trading yesterday.

Provided by Livevol

Fact #2: We can see that 1,184 May 22.5 puts on existing open interest of just 87.

Fact #3: The volume in that line alone was more than 433% of the total average volume across all strikes and all months.

Fact #4: Essentially all of that volume came at 13:49 EST, paying $0.45 against an NBBO of $0.20 x $0.45.  The implication is that there was no effort at all to get better prices.  Just a lifting of the offers.

Now, let's turn to the Options Tab as of today (5-9-2014):

Provided by Livevol

We can see that 1,356 of those same puts have traded today.  Those trades went off @ $1.95.

And here's the most damning (albeit circumstantial) evidence. The Charts Tab (two-years) is below.

Provided by Livevol

FUEL has never traded at this level.  And while it making new 52 wk lows into earnings, the prior low was in the $27 range.

So what?...

The strike on those puts was $22.5 (bought for $0.45).  That means the bet was on the stock going down below $22.  That's quite a bet...

Cost of trade: 1184 x 100 x $0.45 = $53,280
Profit of trade: 1184 x 100 x ($1.95 -$0.45) = $177,600 (333% in one day)

Is it possible this was simply speculation on a terrible earnings release given that the company had falling to new lows into earnings?  Yes.

Do I think this is totally kosher?  No.

This is trade analysis, not a recommendation.

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