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Insider trade on Splunk acquisition?

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417 points mkmk | 5 comments | 21 Sep 23 15:58 UTC | HN request time: 0.502s | source
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bryan0 ◴[21 Sep 23 17:23 UTC] No.37600873[source]▶
Can someone explain the mechanics of this specific trade to a noob? The trader bought 550k options yesterday for SPLK to hit $127/share? Since that seemed highly unlikely they were only priced at $.04 each. but now that SPLK is at $145/share they are worth $18 each? so that would be a profit of ~$10m?
replies(8): >>37600949 #>>37600955 #>>37600984 #>>37601085 #>>37601419 #>>37603104 #>>37603771 #>>37604273 #
1. TuringNYC ◴[21 Sep 23 17:36 UTC] No.37601085[source]▶
I know options well, but I dont understand how spreads didnt react to this volume. Wouldnt the asks go higher and higher and higher with that volume? Also, what insane market maker would offer this much volume and take the downside risk? It isnt even clear how they would offlay such a risk unless they just happened to be holding 550k*100 SPLK shares
replies(3): >>37601442 #>>37601565 #>>37602008 #
2. slig ◴[21 Sep 23 17:59 UTC] No.37601442[source]▶
They hedge using the delta of the option and adjust accordingly.
replies(1): >>37604494 #
3. mhuffman ◴[21 Sep 23 18:08 UTC] No.37601565[source]▶
>what insane market maker would offer this much volume and take the downside risk? At the time the downside risk was near zero, right? It was basically free money for them ... till it wasn't!
4. yieldcrv ◴[21 Sep 23 18:36 UTC] No.37602008[source]▶
the market maker still collected $22,000 in premium if they bought shares after selling the options, thats motivation enough to fill the entire order at a good price before another market maker does. you can write unlimited options, so without scarcity the bid and asks don't have to change if the buyer can be a little patient.

but if they only tried to keep up with the delta then they might not have bought enough shares and have some losses right now, on that one position

they can take losses its a risk

5. TuringNYC ◴[21 Sep 23 21:18 UTC] No.37604494[source]▶
Sure, but the hedge would have raised prices across the vol surface? How did this go thru w/o raising the prices?