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Three trades a day, 500x profit: conspiracy or strategy?

张翔涛
张翔涛
05-16

Last Friday's game sector turmoil led to losses. Rumors of insider trading emerged. Fact or a strategic eye-catching move?

On December 22nd, the News Publishing Bureau released the "Online Game Management Measures (Draft for Solicitation of Opinions)," with provisions strongly limiting game profitability. It mentions banning coercive recharging and limiting recharge amounts, potentially altering the current gaming market business model. This particularly impacts smaller games relying on quantity purchases for profit.

News of industry restructuring caused a seismic shift in the stock market, with Tencent plunging 14% and NetEase 28%. Tencent and NetEase collectively lost over HKD 400 billion in market value. Other gaming companies also hit the trading limit.

As the gaming sector faced a storm, a short video blogger observed someone making a massive profit by shorting Tencent 500 times, raising suspicions of time-travel or insider trading.

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But is the reality indeed as it appears?

Analyzing the viral video titled "Precision Sniper on Tencent's Big Drop! Profits 3000%! Who Leaked the News!?" reveals that due to Tencent's stock price plummeting on that day, Tencent put options collectively surged, with the main contracts experiencing a staggering 3300% increase.

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During significant stock price drops, a surge in put options is a common occurrence. The video's popularity stems from the four words "precision sniper," sparking outrage among investors about insider trading. This added a conspiratorial element to the turmoil, leading some to wonder whether listed companies were truly unaware.

Questions arose about why ByteDance could make a decisive move while Tencent could not. These unfounded conspiracy theories gained attention and support despite being easily debunked with research.

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However, the presented 12,000 transaction volume in the video does not represent a day's worth of trading or the purchases of a single individual but rather the total transactions on the 22nd.

On the alleged "ambush" day, the contract's total transaction amount, skyrocketing 33 times, was less than HKD 660,000. Considering Tencent's daily trading volume of around HKD 300 billion, HKD 660,000 has minimal impact. Regardless of daily stimuli, people consistently engage in shorting various stocks, with Tencent put options being purchased daily by many individuals, making the HKD 660,000 transaction a collective effort rather than the claimed individual early purchase.

The surge of 33 times in put options, attributed to an individual's early purchase, led to a more explosive rumor. It claimed that someone bought Tencent put options for six days at noon on the 21st, and after Tencent's dramatic drop on the 22nd, the options surged from two cents to HKD 30, resulting in a 500x profit.

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(As of December 27, 2023, the blogger has deleted the post)

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These baseless conspiracy theories have captivated some readers, spreading like wildfire on the internet.

However, upon investigation, the highest transaction amount for the mentioned options on the 21st was less than HKD 500. The logic behind the rise and fall of such put options is that the greater the difference between the option price and the actual stock price, the more the options surge when the stock drops.

However, if the stock doesn't fall, the option becomes worthless, especially for a market giant like Tencent, with a market value nearing HKD 30 trillion. The probability of a significant surge or drop is minimal, making options prices far from the stock price extremely low.

This type of contract involves betting with low initial value due to the low probability. While some may buy hundreds of them, losing would result in a negligible loss, and winning could yield returns in the tens or hundreds of times the initial investment.

This high-risk, low-probability scenario appeals to those willing to take a gamble. Moreover, the specific news lacks details on the total amount and provides no images or video evidence, presenting a targeted conspiracy theory that naturally garners support from conspiracy enthusiasts. Instead of considering the risks associated with insider trading, some may find the potential income enticing.

In conclusion:

The surge in Tencent put options is a normal development, and a 500x increase is extremely rare but within the realm of possibilities due to the low transaction volume and probability. The alleged insider trading likely misinterprets collective purchases as a single entity, and subsequent rumors lack evidence. It is crucial to remind everyone that insider trading is a clear criminal offense, punishable by up to ten years of imprisonment. Steer clear of all illegal activities.

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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