Options Trader (or Computer) Reportedly Netted $2.4 Million Profit After Tweet Was Published

The Money Tweet - Illustration - Concept - Twitter logo with dollar signsAt 3:32 pm EST on March 27th, WSJ reporter Dana Mattioli sent out this Tweet:

"Intel is in talks to buy Altera. Deal would be largest in Intel's history. Scoop w/ @danacimilluca coming to http://WSJ.com $ALTR"

The Tweet was teasing an upcoming article on WSJ.com, which was released a few minutes later.

Shortly after the Tweet was released to the world, shares of Altera were halted. After re-opening, Altera jumped nearly 30%.

One fast-fingered trader allegedly made a fortune from Dana Mattioli's Tweet. Shortly after the Tweet was published, somebody bought options to buy 300,000 shares of Altera at a strike price of $36. At the time of the purchase, shares of Altera were trading at $34.

The trader in question purchased these April calls for 35 cents, making his/her total cost for the trade $110,000.

By the time that trading had closed on March 27th, shares of Altera were trading at over $44/share, which meant that the calls were now worth approximately $8.50 each. The total profit for the trade? $2.4 million. Not bad for a few hours of work.

How could a trader have spotted the Tweet and placed the large order, all within a matter of a minute or so? The trader may have been utilizing some sort of trading algorithm that automatically scans Twitter for actionable data, such as the Tweet posted by Dana Mattioli. There is a good chance that the computer came across the Tweet and automatically placed the trade. There are a number of computer programs that will automatically trade news releases, so it shouldn't surprise anybody to hear that there are algorithms that also crawl Twitter as well.

This brings up the question - is this type of algorithm fair? The linked article in question (see below) asks this question. The answer? Of course it's fair. Everybody had access to this information at the exact same time - it was not insider information. If you are smart enough to build a computer algorithm that trades based on the words contained in a news release or Tweet, you deserve to make all the money you possibly can.

Source: Fortune.com - How One Trader Made $2.4 Million Off a Tweet

Filed under: General Knowledge

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