Super Micro Computer Inc. (NASDAQ: SMCI) seems to be in the midst of a catastrophe.
In March, the stock hit an all-time high (ATH) of $118 — at that point, SMCI stock was up 332% on a year-to-date (YTD) basis, bringing returns over the past two years up to an impressive 2,500%. Then, disaster struck.
Renowned, feared, and above all aptly-named short selling activist group Hindenburg Research released a report on August 27, which alleged widespread and far-reaching accounting fraud, export control failures, and sanction evasion. At the same time, the group revealed that it had initiated a short position on SMCI.
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A day later, the semiconductor company announced that it would delay the filing of its annual report. SMCI share price dropped from $54 to $38 — a loss of almost 30%. While obviously not ideal, this was not as intense as some of the reactions previously caused by Hindenburg reports.
Until recently, that is — between October 29 and October 30, the stock plummeted by 29.38% after it became public that the company’s auditor, Ernst & Young (EY), had resigned six days prior.
At press time, SMCI stock is trading at $33.52 — although it is still up 72.08% YTD, the resignation will certainly cause panic and a mass selloff among shareholders.
Interestingly, one savvy trader made quite a tidy profit from this drop by utilizing options — but the timing of the trade has raised suspicions of insider trading.
Options trader makes a 3,000% profit on SMCI puts in a week
On October 23, an anonymous trader placed a significant and risky bet that SMCI shares would see a marked decrease in price. The transaction involved the purchase of 3,000 put contracts on the stock, priced at $0.05 apiece.
The options had a strike price of $29.00 and were purchased at a time when SMCI stock traded at $45.36 — meaning that they were nearly 50% out of the money. To put things plainly, the only possible scenario in which these contracts could become profitable is if the company suffered a catastrophic decrease in share price.
As if that was not suspicious enough, the puts have an expiration date of November 1 — leaving a very narrow window for that price nosedive to occur.
At the time of publication, those same put contracts are trading at $1.55 each. The initial investment totaled just $150 — now, it is worth $4,650, leaving a tidy $4,500 profit, or 3,000% in terms of percentage.
What’s more, SMCI stock price looks set to drop even further — potentially making the trade even more profitable.
Featured Image:
OleksandrShnuryk, Los Angeles, California, USA— August 3, 2019. Digital Image. Shutterstock.
