Federal agents are investigating whether high-frequency trading firms break U.S. laws by acting on nonpublic information to gain an edge over competitors. The Federal Bureau of Investigation ‘s inquiry stems from a multiyear crackdown on insider trading, which has led to at least 79 convictions of hedge-fund traders and others. Agents are examining, for example, whether traders abuse information to act ahead of orders by institutional investors, according to an FBI spokesman. Even trades based on computer algorithms could amount to wire fraud, securities fraud or insider trading.
SEC needs bigger budget to police trading, chair says
High-frequency trading dominates the investing conversation Companies involved in high-frequency trading use complex computer algorithms to buy and sell stocks at extremely high volumes for extremely short periods of time. The computers take advantage of tiny price movements and aberrations, collecting profits of pennies (or less) per trade. The high-frequency traders look for a price mismatch or a permanent price movement driven by fundamentals such as a data release or world event. Using speed as the ultimate advantage, the firms buy or sell the stock in question before anyone else. In essence, because of their speed advantage, the traders can perfectly time highs and lows in the market on a microscopic scale.
Should the contract expire worthless, the premium would represent a 8.50% return on the cash commitment, or 13.14% annualized at Stock Options Channel we call this the YieldBoost. Click here to find out the Top YieldBoost Puts of the S&P 500 Below is http://www.etftradingsignals.com a chart showing the trailing twelve month trading history for Grifols SA, Barcelona, and highlighting in green where the $40.00 strike is located relative to that history: Turning to the calls side of the option chain, the call contract at the $45.00 strike price has a current bid of $2.05. If an investor was to purchase shares of GRFS stock at the current price level of $41.00/share, and then sell-to-open that call contract as a covered call, they are committing to sell the stock at $45.00. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 14.76% if the stock gets called away at the November 22nd expiration (before broker commissions). Of course, a lot of upside could potentially be left on the table if GRFS shares really soar, which is why looking at the trailing twelve month trading history for Grifols SA, Barcelona, as well as studying the business fundamentals becomes important.
An FBI spokesman who did not wish to be named said Monday night that the bureau was investigating whether high-frequency traders are front-running others’ trades by getting to exchanges first. A big trade, such as a bank shorting a million shares of a company under investigation, could be considered a material event, the spokesman added. A person familiar with the FBI probe told Reuters on Tuesday that the FBI is also looking at areas such as whether high-speed firms can cut the line in terms of how security orders are placed or are engaged in “spoofing” trades that are not really trades to give the illusion of market activity. White declined to answer questions from Reuters on the sidelines of the hearing about whether the SEC’s probes are exploring similar topics as the FBI’s.