Comment Re:So what's the problem with insider trading anyw (Score 1) 246
I'm not an economist or anything, and my natural reaction would be to think that insider trading should be legal because in all cases you need some amount of information to make a good decision about stock transactions, so why not take it all the way to allowing any amount of insider trading ?
Here's why it's a bad idea :
Did you notice how the value for Yahoo stock spiked when there was this announcement about Microsoft making an offer to acquire them ? In some sense, it just had to spike upward because MS was offering more than the shares were worth at the time so shares had to go up if this was a serious offer. However, if you knew of this beforehand, you could make very clever stock transactions and have a truly "unfair" advantage.
It's not like the stock analysts or anyone not related to the companies could have predicted that one. No amount of good judgment will allow you to guess the companies secret short-term plans and how it will affect stock. If what I just described was legal, anyone in charge of a large company could pull this one-time trick of
1) buying options to buy stock from company Lousy Inc.
2) do a press release about how you're making a crazy offer to acquire Lousy Inc.
3) Lousy Inc. stock goes up
4) use your options to buy Lousy Inc at low prices, sell high -> pure profits
5) retract your offer to acquire Lousy Inc
6) get the hell out
Something like that.
Here's why it's a bad idea :
Did you notice how the value for Yahoo stock spiked when there was this announcement about Microsoft making an offer to acquire them ? In some sense, it just had to spike upward because MS was offering more than the shares were worth at the time so shares had to go up if this was a serious offer. However, if you knew of this beforehand, you could make very clever stock transactions and have a truly "unfair" advantage.
It's not like the stock analysts or anyone not related to the companies could have predicted that one. No amount of good judgment will allow you to guess the companies secret short-term plans and how it will affect stock. If what I just described was legal, anyone in charge of a large company could pull this one-time trick of
1) buying options to buy stock from company Lousy Inc.
2) do a press release about how you're making a crazy offer to acquire Lousy Inc.
3) Lousy Inc. stock goes up
4) use your options to buy Lousy Inc at low prices, sell high -> pure profits
5) retract your offer to acquire Lousy Inc
6) get the hell out
Something like that.
