With the share price of Super Micro Computer (NASDAQ: SMCI) crumbling amid investor concerns over its accounting practices, an unidentified trader has seen substantial gains on the company’s put contracts.
In a trade considered “unusual,” the trader purchased 3,000 put contracts on SMCI at a $29 strike price, achieving a 3,000% gain in just one week, data shared by The Kobeissi Letter on October 30 indicates.
The trade details reveal that the put contracts were acquired at a bargain price of $0.05 each a week ago. Following a 35% plunge in the stock’s value within minutes, the put options soared to $1.55 per contract, transforming the initial $15,125 investment into a staggering $465,000.
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Notably, a put contract gains value when the stock price declines, suggesting the buyer anticipated a significant drop.
The information technology firm’s stock plummeted after news emerged that Ernst & Young (EY), SMCI’s auditor, withdrew from the account, citing undisclosed concerns that halted its willingness to continue auditing its financial statements.
The unidentified trader’s massive returns have raised questions about whether this was simply an instance of foresight or insider trading.
SMCI stock troubles
SMCI has experienced strong growth fueled by its venture into artificial intelligence. However, the company’s troubles began in August when it delayed filing its annual report, citing a need to evaluate “its internal controls over financial reporting.” Hindenburg Research also claimed “accounting manipulation.”
The AI momentum initially boosted the company’s market cap from around $4.4 billion at the beginning of 2023 to a peak of $67 billion in March. However, with the latest sell-off, the stock has shed approximately $10 billion as it continues to hemorrhage capital.
Meanwhile, analysts foresee a bleak future for SMCI. On October 30, analysts at Needham suspended their stock coverage, noting that while they previously issued a ‘Buy’ rating, SMCI now presents a risk, warning that it may default on its Term Loan Agreement with Bank of America.
“Not only does Ernst and Young’s resignation raise considerable questions about the validity of Supermicro’s current and past financial statements, but it also raises significant questions about Supermicro’s corporate governance and management’s commitment to integrity and ethical values,” Needham noted.
SMCI stock price
By press time, SMCI was trading at $32.56, down 33% in the past 24 hours. However, the stock remains up 15% year-to-date.
It remains to be seen how SMCI’s situation will impact the broader semiconductor sector, as many equities in the space are also experiencing a sell-off.
