By Jon Najarian
Today I woke to see the announcement that medical-technology company Stryker (SYK) had reached a definitive agreement to acquire Mako Surgical (MAKO) for $30.00 per share. I'm sure shareholders of MAKO were delighted to see the value of their positions nearly double overnight from the closing price of $16.17 yesterday. However, I KNOW that some traders were much happier than others, as our work at OptionMonster shows very strong unusual activity ahead of today's windfall.
Many of you who follow our work on CNBC, OptionMonster, and Yahoo Finance probably wonder whether every deal involves some kind of cheating based on insider information. To that I'll say that not every deal is dirty, but the more I see how brazen some traders are, the more I am sure that some have far better access to what should be closely guarded information than the rest of us.
Coming as this does on the heels of yesterday's great work by my CNBC colleague Eamon Javers, who broke the news that some traders were apparently leaked the Federal Reserve's statement early last Wednesday, this should really send the SEC enforcement division into a feeding frenzy!
Here is a timeline that I believe shows a significant amount of intelligence was leaked to some ahead of today's Mako acquisition:
- On Aug. 27, OptionMonster's trade-monitoring algorithms picked up unusual activity in Stryker, and I mentioned it on CNBC's "Fast Money Halftime Report" as my final trade. SYK shares and call options jumped in value quickly as Stryker ran from $67.04 to $71.94 per share!
- Then, three days later on August 30, we also had the unusual activity in MAKO calls and puts. The trades we cited on OptionMonster were the purchase of 2,500 January 15 calls, sale of 2,500 January 22.50 calls, and the sale of 2,500 January 12.50 puts. The trade, which allowed the owner to control MAKO from $15 to $22.50, was established for $0.80, or a total investment of $200,000 ($0.80 x 2,500 x 100 shares per option). This trade had the potential to expand from $0.80 to $7.50, a level that it achieved today as shares of MAKO exploded to $29 on the takeover--a profit of $1,675,000.
- But this is what may tighten the noose around the neck of the insider traders: They doubled down this past week, doing a similar spread, buying the January 17.50 calls while selling the January 22.50 calls and January 12.50 puts for a net cost of $0.50. This was done 1,000 times, so that was a $50,000 investment. The potential windfall if shares were above $22.50 would be $4.50 per spread, or $450,000.
- Then, just for good measure, someone bought 386 November 22.50 calls for about $0.16, a mere $6,176 investment. But as shares of MAKO traded to $29.53 today, those November 22.50 calls were worth $7. Backing out the $0.16 invested, you get a paper profit of $6.84 on 386 options, or $264,024!
I relish the fact that our work at OptionMonster comes with such timestamped trade notifications, as it proves our ownership of the information. The rush we get from the markets is similar to the adrenalin spike that came with stadium cheers that my brother Pete and I enjoyed in college and professional football. But at least we had referees on the field, as opposed to what's going on in the markets now.
Insider trading, including data apparently leaked from the U.S. government's central bank, is alive and well. So my question to the regulators is when will the outrage be large enough to slam the door on either or both?
- Investment & Company Information