Carl Icahn's Netflix Exit: Genius, Collusion or Both?
By Bryan Wiener
Tuesday was one of the craziest days for a single stock in quite a while.
Having released its earnings report after the close on Monday, Netflix (NASDAQ: NFLX) raged to its highest level ever in after-hours trading, hitting upwards of $396. Then, in an enormous reversal of sentiment on Tuesday, NFLX hit its all-time intra-day high of $389.16 and proceeded to tank back down to a closing price of $322.52. That's only $1.00 away from the low of the day.
The path of the stock was so auspicious that it prompted detailed discussion by the CNBC Closing Bell crew. Jon Najarian pointed out that on a five-minute chart it was very transparent that an entity (presumably a fund) was exiting its stake in the stock, as one million share blocks were being dumped into the market as soon as the bell rang Tuesday morning.
Well wouldn't you know it, investment titan Carl Icahn tweeted, “Sold block of NFLX today. Wish to thank Reed Hastings, Ted Sarandos, NFLX team, and last but not least Kevin Spacey.” Just as he did when he got into the trade, which netted him over $825 million (yes, not too shabby), Mr. Icahn used the social media site to announce his position.
This is such a gray area in terms of legalities -- and it raises the question: Is this collusion?
It is SEC law that company insiders announce their stock/option transactions. It's also is true they must abide by a minimum holding period. Now, Carl Icahn is not an executive of the company, he is simply a well-respected investor who bought an undervalued stock and witnessed its stock price grow by a multiple of roughly 6.5. What's suspicious is the fact he made this gigantic trade, which included buying strips of very cheap out-of-the-money options that transformed from light cents to heavy dollars, then announced it to the Twittersphere.
This analysis may come off as blatant jealousy; every trader wishes he or she had made this trade. In hindsight that is true. We all should have ridden the coattails of Mr. Icahn. But there is a serious issue at hand. Where do we cross the line at collusion? Mr. Icahn talked up his position on Twitter and presumably had the intention of pushing NFLX as much as he could. He also does this with Apple (NASDAQ: AAPL).
It sounds like there is collusive intent to a layperson in the laws of investment regulation. But honestly, how could that layperson be blamed?
Also, as a side note, the 50 percent retracement of the day was Tuesday's close. Very clever, market makers. Very clever…
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