Further proof that it’s who you know, not what you know, in investing, an investor made a killing in the call options of Ensco plc (ESV) this month. The trader seemed to pull a rabbit out of his hat when he purchased over 6,000 July $55 calls in ESV for 35 cents, around 3 pm on June 6, 2014. Just over two weeks later those calls are bidding $1.35.
So this investor put up $210,000 on June 6 and two weeks later is sitting on $810,000, and counting. So who was it, and how did they know ESV would pop? Your guess is as good as the SEC’s. Actually, your guess is likely better than the SEC’s. In our opinion, this trade is just one of MANY examples of rampant insider trading, cronyism and fraud in the U.S. capital markets.
Let’s look at the company events since that large option purchase on June 6:
1) It’s interesting, yet odd, to note that on June 6 and 7th insiders sold some of their shares, including a VP who sold a $252,000+ stake.
2) The “Dividend Channel” named Ensco PLC as a top dividend paying energy stock (it’s divi is now 5.39%)
3) June 17 Ensco announced that one of their ultra deep water drill ships was contracted by Total SA, adding $1.2 billion to ESV’s order backlog….along with several other new contracts announced in their 8k filing
While the June 17 contract announcements in the 8k filing seem the likely motivating factor in the investors call buying, it is interesting that the stock price didn’t spike on that day or the next.
It’s highly unlikely that the Dividend Channel recommendation had anything to do with this call buying it is always a possibility. It really depends on the size of their subscription base, and it is difficult to determine from their website.
Our money is on a leak on the new drill ship contract, either on the Ensco PLC side, or on the Total Energy side. While you can’t beat them, you can certainly join them. When you see a large call buy like the one on Ensco PLC (ESV) on June 6, it can pay to ride their coat tails as it usually is based on some sort of insider information.
Here’s the stock chart since June 6 on Ensco Plc (ESV)