On Tuesday at 2 p.m. the Federal Reserve inadvertently sent the meeting minutes from its March gathering to more than 100 people, including banking executives, congressional employees and Wall Street bank liaisons. Officials say they didn't realize the mistake until 6:30 the following morning. In response, the minutes were released at 9 a.m. — five hours ahead of schedule but 19 hours after the material was leaked.
What in the name of Gordon Gekko happened and who gained or lost from the leak? In the attached video Jon Najarian, co-founder of OptionMONSTER, says he has reason to believe the pre-released information found its way to the trading pits almost immediately.
"We saw right at the time the release happened, Jeff, massive put sales," Najarian explains. "And then we saw a whole bunch of call buying in the short term in the April contracts in the just at the money call options, which over the next 24-hours turned out to be a pretty good bet."
For options newbies, shorting puts is a bet that the market won't go lower. Puts increase in value as the market falls and erode as they near expiration. Call buying is a specific bet that the market will move higher in a short amount of time.
Being short puts and long calls is exactly how one would want to be positioned if they were in possession of information likely to drive stocks higher. Does that mean there was crooked trading going on? Not necessarily, but it certainly was a good trade made with exquisite and curious timing.
Najarian is quick to point out that he's not accusing the banks or anyone on the receiving end of the minutes of malfeasance. The leak may have been just one of those things, but Najarian does have one big question that has yet to be answered to anyone's full satisfaction.
"I wonder why this information is offered to anybody," he asks. Whether it's Michigan Sentiment data, jobs reports or any number of other material information released on a regular schedule, what's the purpose of giving the information to anyone ahead of time?
The public deserves an answer at a time when individuals are still struggling to believe markets aren't still rigged against the little guy.
For more on options and investing, check out details of Najarian's The Street Monster investment conference coming this June.
- Gordon Gekko