Yesterday, an investor made an unusual bet on Coinbase, purchasing COIN $50 weekly puts worth $107,000, a position that was 19% out of the money (OTM) and due to expire in four days. Today, the Securities and Exchange Commission (SEC) announced a lawsuit against Coinbase, resulting in the company's stock plunging 20%.
Those put options skyrocketed by nearly 2,572%, turning that initial $107,000 investment into millions. This begs the question: what did the investor know, and when did they know it?
This could be a classic example of what appears to be insider trading, which is illegal and frowned upon in the financial world. Insider trading occurs when trades are executed based on material, nonpublic information. In this case, the investor's put options indicated they were betting heavily on Coinbase's stock price falling sharply in a very short period.
Insider trading is considered unfair because it undermines investor confidence in the fairness and integrity of the securities markets. In this instance, the timing and nature of the put options, along with the SEC's lawsuit announcement, raises suspicions that the investor might have had foreknowledge of the lawsuit.
Notably, unusual trading activity against COIN was detected by financial data tracking platform Unusual Whales, which alerted its users to the suspiciously bearish bets. A slew of traders followed suit, placing similar trades against $COIN. Then, a few hours later, the SEC announced its lawsuit against Coinbase, triggering the 20% stock plunge.
While it might be tempting to attribute this to good luck or financial savvy, the suspicious timing between the bearish bets and the SEC's lawsuit announcement could point to something more insidious.