Hello, (DISCLAIMER, THIS SCENARIO IS PURELY FICTIONAL AND HAS NOTHING TO DO WITH WALMART) I chose Walmart becaus it's easier to imagine the situation and real stock chats can be used to illustrate the situation and get a better understanding of it all. I understand what is insider trading, but don't really get everything when it comes to the consequences on stock prices etc. Can you please help me understand it better with a very easy scenario? So, let's imagine walmart (because it's easier with a big entity I guess). I will separate the timeline of the event in three phases: (1) You work at wallmart, a big event is gonna happen in exactly four month for walmart. It's big news, everybody knows about the big event. The big event should consolidate trust for the stakeholder of walmart etc, define the next step in walmart international development but, as an insider, you know the big event is gonna be a disaster, and that the stakeholder are gonna freakout. It's a disaster for the reputation of the brand, nothing crazy. No natural disaster or physical damage etc that will coast money... But a big news will destroy the image of the brand for the coming months and in this economic context, it's a really bad signal for investors. With your insider knowledge, you know everything about the event and also that it's effect won't last but instil fear in the mind of the stakeholders. we are a day 0, four month before the big event. (2) The big event is there, BOOM, the disatester of biblical proportion happens. You knew it! (3) one week after the disaster, the Annual general assembly is happening, and the a second disaster happens, the day of the assembly, second freakout... This time the stakeholder are really really really pissed, walmart can't really do much, just damage control, public relation... So, regarding this scenario, my 3 questions are : during the phase (1), how can this insider knowledge be used to take advantage of the situation four month after the big event? In this scenario, you used the insider knowledge with a group of people (from reddit for exemple) who want to use it at their advantage. Let's say tens of thousands (i know that's a lot). during phase (2) when the first disaster happens, stock prices should drop. What would happen ? the 10K plus people now really trust you... This is big... all reddit know about it, or at least the crazies who heard about the wall st bets event wants in... this is getting really big. I guess now the people with the insider knowledge buy stocks because they trust you, the price are low, they know it's temporary, it will rise up soon, there's nothing big, the disaster is about to pass. Phase (3), second disaster hits, the insiders knew it would happen, their number grew between the moment the first disaster went boom and now. During the week, they discussed their strategy, you are part of them. What is your strategy now that second disaster is hitting walmart and affecting the stock price ? what are the consequences for the price of the stocks ? on one side you have the stakeholders freaking out, but on the opposite side, reddit know about the disaster and that it's insignificant, there's actually nothing to fear... I really need to understand this kind of scenario... it sounds very hollywood, but with the wall st bets story I heard about the last few days, I am really interested in knowing more about stock market and how this kind of event could impact such a big company. Thank you for your time.
English is not my first language... Don't take everything literally. I don't know if you are missing the point or just trolling, but here the idea is to have some real insider intel on the events about to happen for the company.
I made à mistake. The question was : how can this insider knowledge be used to take advantage of the situation four month BEFORE the big event? It's about the whole scenario and how the team would act at each phase (1.2.3) and the impact for the Company. Since it is a big Company, could it impact a Company of such size ? What would be the scale of that impact? Thank you for your time.
The litmus test for insider trading revolves around being in possession of "material non-public" information. The insider trading may have an impact on the stock or option price or it may not. The information generally traces back to an employee or someone who has a relationship with an employee. Attorneys and physicians are notoriously stupid when insider information comes into their possession. Courts will decide if you are an insider and the rule is more about the information than the job description. There is also a supervisory responsibility as to who gets charged so that today most institutions require a write-up as to the research and decision-making process. Does it make a difference if the event is prior or post to some announcement? Again the litmus test is material non-public.
I think my examples is not good enough. Let's say you know tesla is making a New factory. It's their New flagship and in the upcoming years, they want this same kind of factory to be implanted in various country. Big move for tesla. But you know the inauguration Day Will be a média shit storm. Nothing go as planned. One week after, general assembly, the shit storm intensify... Tesla is in full damage control mode, stakeholders are panicking. As. Stated before, only you and a few head of tesla know about the whole scenario : Cfo, key People deciding and planning strategy. The insider working for Walmart got the memo about the up coming shit storm and want to use the info at their avantage when the stock price Will drop. Obviously, after the first panic, and the second, price Will drop. For the court part... It's not important. I Just want to focus on the stock market / compamy impact.
If you traded ahead of the required public filings you could be considered trading on inside information. Remember Musk himself has garnered regulatory scrutiny for his public statements.
Yes i know... That's why the title of the thread is about insider trading. And of course it's not about tesla or any other company. It's Just a made up idea. In my profession i've been around sensitive information and always Wondered what would happen of someone leaked them to People Who could use them. Hence the whole scenario
Are you asking how someone having inside information can profit the most? This may depend on the stock and circumstances, especially expected price range after the event. Here are some papers on this subject: "How do Informed Investors Trade in the Options Market" http://people.stern.nyu.edu/msubrahm/papers/Informed.pdf "Informed Options Trading prior to Takeover Announcements: Insider Trading?" http://people.stern.nyu.edu/mbrenner/research/brenner-patrick-subrahmanyam-informed-trading.pdf