Do insiders know stuff that the public doesn’t and trade on it? To help you draw your own conclusions, we’ll share a story of how one trader turned $230,000 into over $1,000,000 in about 24 hours.
- A trader who made a huge profit on PENN stock may have simply gotten lucky. However, the fact that he was willing to make such a risky bet suggests that he may have had some inside information.
- One insider at Tesla has a remarkable track record of selling at optimal times, avoiding significant losses on 9 of the last 11 sales made over the past 3 years.
A Scandalous Story of Insider Trading, or Pure Luck?
On August 8, PENN stock rose by over 17% in after hours trading on news that Disney’s ESPN was launching ESPN BET with Penn Entertainment.
The most active options chain on Penn Entertainment before earnings on that day was the strike 25 call, which had just 3 days to expiration. With so little time to expiry, the odds of an option out-of-the-money expiring worthless is very high. Absent a massive catalyst, buying far out-of-the-money call options so close to an expiration date is at best a pure gamble, and at worst akin to flushing the money down the toilet.
Unless of course you had money to burn or knew something ahead of time, like news that would catalyze a massive stock rally. And it appears one trader fell into that category of being willing to roll the dice, or knowing something, because he/she bet an astonishing $230,000 on strike 25 calls expiring in 72 hours, and won, turning the principal into a cool million dollars within 24 hours.
Follow the money is the old adage, and when it comes to calls and puts on the week of expiration, paying close attention to massive speculative bets is often a great signal that somebody knows some big news is about to be released.
So, is there any way to take advantage of other stocks now that insiders are trading?
When Zachary Sells, Sell Tesla
Following anonymous traders betting big is one thing, but following insiders of companies and tracking their trades is quite another. One such insider is Zach Kirkorn, CFO at Tesla. Like other big wigs at publicly traded companies, his buys and sells are of public record, so there is nothing nefarious about them. Quite the opposite, he must officially disclose his positions being in a position of such significance at Tesla.
We studied his recent trading record to uncover how much a trader would have saved themselves in losses had they sold when Zachary did. The answer turns out to be, A LOT.
- In September 2021, he sold 2,780 shares before the stock fell 16%.
- In December, he sold 2,652 shares before Tesla fell 48%.
- In March 2022, he sold 2,389 shares before Tesla fell 61%. In June 2022, he sold 2,538 shares before a 54% fall.
- And in September 2022, he offloaded 7,550 shares prior to a 59% plunge.
- A couple of additional sales came before 39% and 21% share price tumbles too.
In fact, after studying his past 11 trades, only two sales did not result in significant selloffs. And in both cases the rises in share price were modest, both under 3%.
So why is all this relevant? Because he just dumped another 3,750 shares of Tesla earlier this month. I’ll leave you to draw your own conclusions on the reward to risk ratio of holding on to Tesla stock when the top brass is selling.