Flow Review September 4, 2024: Super Micro Computer, $SMCI, and its unusual trading days before major news event

In today’s issue, we’re going to cover a remarkably well-timed trade that occurred during the week of August 26th to August 28th. This trader opened a cheap position just days before a news event for Super Micro Computer Inc. $SMCI, and exited for a handsome profit.

Before we get started, Unusual Whales is ON SALE for just FIVE more days! Get 15% off new subscriptions, and 20% off when upgrading to a higher tier!

The tale of this interestingly well timed trade in $SMCI started on Monday, August 26th while the $SMCI stock price traded at roughly $565.52. In the final minutes before the market closed on August 26th, a trader transacted 500 volume of the deep out of the money $280 put contract expiring on August 30th. 

After downloading the data from the Unusual Whales data shop, we can see that all 500 contracts hit the tape during the very last minute of trading, filling at the ask price for an average of $0.18 per contract; surprisingly at the contract’s highest price of the day. Seeing deep out of the money contracts, 50% out of the money, no less, is a bit interesting, especially when the expiration date loomed so near. Such a transaction could carry a lot of connotations, but one would generally view such a trade to have a relatively low probability of success.

On August 27th, $SMCI did indeed trade lower than it did the day prior, opening as low as $517.99 per share. During the drop, the $280P 8/30/2024 contract experienced a hefty new high, hitting $0.65. However, this jump in price was extremely short-lived, as $SMCI bounced to a high of day at $557.47 per share. While this price still clocked in well below our trader’s entry at $565.52, the contracts were so far out of the money, and of such short dated expiration, that the Greek Theta, measuring time-decay, ate these contracts alive. By the end of regular trading hours, these contracts had fallen -72% from the trader’s entry, to $0.05 per contract.

While August 27th seemed to indicate bad-news-bears for this trader, the expiration date drawing ever nearer as Theta decay drove the value of the $280P straight back to the ground, August 28th carried this trader’s salvation in a picnic basket.

On the morning of August 28th, the Super Micro share price took a major hit following not one, but two major news reports surrounding the company. First, Super Micro released an announcement that they would not file its annual report for the fiscal year with the SEC on time. According to the release, “$SMCI is unable to file its Annual Report within the prescribed time period without unreasonable effort or expense.” The release went on to discuss the need for additional time to assess the design and operating effectiveness of their financial reporting controls. 

In addition to this, Hindenburg Research released a report on August 27th about $SMCI, detailing a 3 month long investigation that results in allegations of accounting manipulation, sibling self-dealing, and sanctions evasion. 

The market reaction occurred right at market open, when $SMCI opened at $486.32 per share.

The trader’s $280P responded in kind. At open, the contract was already up 205% to $0.55. Even though the contract still sat over $100 out of the money when $SMCI reached  its lowest price of the day, $395.27, implied volatility on the dump did some work, and this contract reached a high of $2.00.

During the hours following market open, we noted a flurry of activity on the contract, and it appeared that the trader didn’t take any chances beyond this point. Notable bid side activity hit the tape as $SMCI fell, ranging in price from $0.55 to $1.28, While enough volume transacted and carried over into open interest the following day, it seems most likely that the original trader exited their position during those hours of high volume.

Let’s recap the trade. It’s hard to tell the exact average the position closed at, but our trader likely exited most of their contracts between $0.66 and $1.28 based on the bid-side volume profile pictured above. So:

$0.18 → $0.66 | +266%

$0.18 → $1.28 | +611%

Regardless of where this trader’s exit fell, it still represents a remarkable trade with nearly impeccable timing. Suspicious, or lucky? 

NOTE: This post is not financial advice. The stock market is risky, and any trade or investment is expected to have some, or total, loss. Please do research before any trade. Do not use this information for investment decisions. Check terms on site for full terms. Agree to terms before considering this information.