Last week I opined in the posting "Being in Business with the US Government" about the curious trading going on in Lorillard (LO) stock. I noted that a government panel had released a report that changed the direction of the stock completely. Below I will finish that story with additional information that has come to light over the last four trading days.
When the FDA panel released their report on menthol in cigarettes Friday March 18 frankly it caught me by surprise. The reason being that the panel in a news release several weeks earlier said that the report would be released March 23. Everyone trading in Lorrilard stock knew the report would move the stock significantly either up or down depending on which way the report leaned. Obviously if the report implied no banning of menthol Lorrilard would move upward. Just to refresh your memory Lorrilard's chief product is menthol cigarettes. Other tobacco companies make them too, but Lorrilard's main profit center is menthol products.
Immediately after the report was released LO moved upward and continued upward to finish around $87 per share by the end of Friday trading. Over the next three trading days the stock continued to move upward finishing right at $95 per share ;ast night. At 4:11 PM yesterday shortly after the market closed a 2.6 million cumulative share sale occurred at an average price of around $94.58. That is a huge sale, even for a stock with this size of share float. To put it another way that is the total amount of shares that generally trade in one whole day of LO trading.
What happened here? One would be a fool not to see that a $247,000,000 trade is someone who has enough either cash or margin in their account to be a big trader. One would also be a fool not to see if you got in last Friday at $80 or less this would be a 4 day $40 million plus profit. Folks this is why I sometimes get worried about our system.
The following scenario is what I guess happened here. Someone in the governement with the info about the news release alledegly told someone with serious assets what the report was going to say before the market opened last Friday. If true we would be talking insider trading here. It was alledgely done purposely on an options expiration day so as to get maximum value for the inside trader. I fully expect that a smart trader would not purchase the stock, but buy options on Thursday so as to basically have to little cost in their transaction.
I also expect whoever alledgely did this likely knows the enforcers over at the SEC are too busy to mess with a single trade investigation either. This kind of alledged trading is what makes the individual investor believe they have no chance in this market.. And trust me it goes on no matter who is in the White House. Fortunately it is not rampant or I would see it myself more regularly as a trader. But even one time is too much.
I have owned LO both long and options in the past, but do not currrently own either. I personally gained about $3300 in this trade due to the manipulation in the stock and will be donating that profit shortly since I consider it tainted money. I would wish any insider trader would feel the same and do likewise, but expect it not to happen.
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