We’ve all heard the term “insider trading” before… but you’ve probably brushed it off because it didn’t affect you, and even if you had access to that information you wouldn’t trade it because it’s 100% illegal.
Sure, Uncle Sam does his best to catch these crooks… but it doesn’t stop these Wall Street mammoths from extracting and acting on proprietary information.
We’ve seen it happen time and time again with some of the largest hedge funds in the game.
Ever heard of SAC Capital?
If you haven’t, it’s okay… because that fund is no longer around.
Well, there were multiple cases in which SAC traders raked in hundreds of millions of dollars after throwing down massive bets on stocks based on “insider information”… ultimately leading to the downfall of the “successful” hedge fund.
If you’ve ever watched Showtime’s Billions, you’ll find some striking similarities between what goes on in the real world and this “fictional” story of Axe Capital.
These traders have no fear when it comes to insider trading, and they think they’re untouchable.
But the thing is, even when those who have a conscience speak out against these massive Wall Street firms… it doesn’t help the cause.
Take Former SAC Capital tech analyst Jon Horvath (below) for example.
The poor guy was pressured by his boss Michael Steinberg to come up with some stock tips that would allow him to generate alpha.
I don’t blame him for taking part… because when you don’t, you lose your job and could end up homeless, especially if you’re an analyst. But he did the right thing by coming out and testifying against his boss.
The star witness in a massive case launched against SAC Capital stated, “I thought my job was in danger. I thought he would fire me.”
In Horvath’s testification, he quoted Steinberg (who was taking it on the chin and was trying to dig himself out of his PnL hole) — “What I need you to do is to go out and get me edgy, proprietary information that we can use to make money in their stocks.”
Horvath provided Steinberg with some insider tips on Dell from another analyst… and it proved there’s a circle of insiders who share illegal information all the time.
Heck, that wasn’t the only case against an SAC Capital employee.
Back in 2014, former SAC portfolio manager Matthew Martoma got hammered with a 9-year sentence after he helped the firm make $275M from profits and averted losses.
Even with these cases, SAC Capital’s fearless leader Steven A. Cohen got off scot-free. In fact, he started a family office (Point72)… and that just means he can’t take outside money — but he can still trade his own money, and he’s got a net worth of more than $13B.
If you think these guys learn their lessons… you’re mistaken.
You see, they have massive sums of money… and they’re able to craft new ways and still throw down large bets based on “insider information”.
How do I know?
Well, I use an options scanner that sniffs out their every move… I can see the fact that they leverage the power of the options market to place bets AHEAD of catalysts. Typically, these insiders are 100% right on their calls… and they lock in some mind-boggling returns.
Today, I want to walk you through a trade that my Dollar Ace scanner picked up… and how I was able to lock in a 200%!
The reason why these traders have been turning to the options market is the fact that it’s complicated for lawyers to explain to a grand jury how calls and puts work.
Well, not many people really understand the math behind it. In the court of law, everything needs to be proven to a T.
However, when it comes to the trading world, you really don’t need to understand all the intricacies of options.
All you really need to know is the fact that a colossal bet was placed… and you follow them into the trade.
You might be wondering, Kyle isn’t this illegal if we follow them and they trade off information.
I don’t know the information… and all I’m looking at is the order flow.
For example, ahead of General Electric’s (GE) earnings announcement… my Dollar Ace scanner picked up a sizable order — 4,784 GE November 8th $9.50 calls went off for 19 cents, a whopping $90,896 in premium on a long-shot bet.
Coincidence… or did they know?
Sure, I saw the options trade go off… but I also like to look at the charts.
Check out the daily chart in GE below.
The stock was forming an ascending triangle pattern — a bullish setup.
The interesting part about this trade was the strike price of the GE calls that “insider” scooped up. They purchased the $9.50 calls, which was a key breakout level.
Once I did my due diligence, I figured this thing could rocket higher.
I actually put GE on a watchlist and sent it out to Dollar Ace clients… and the next day, I alerted them when I was getting into the trade:
I bought 400 GE November 8 2019 $9.50 Calls for .14.
This is from yesterday’s watch list, after we saw some big unusual call buyers at that price yesterday. In fact, they were buying at .19 so this is even a tad cheaper. GE has earnings October 30th (before the bell) so this is definitely a riskier trade!
Take a wild guess about what happened with GE…
GE smashed expectations and actually raised its cash flow outlook even with the tariffs and a projected $1.4B loss this year from Boeing’s (BA) grounding of its 737 Max.
Bingo Bango Bongo!
GE actually broke right through that resistance level with ease…
And I locked in a whopping 200% gain overnight!
However, I wasn’t the only one who followed this “insider” into the trade…
The thing is… we see this happen ALL the time with my Dollar Ace strategy… and we can directly profit from these trades.