The AP Twitter hack created panic on Wall Street. We can look back to the LinkedIn breach and learn that security events can move markets in unexpected ways. As the media reported, all of the major stock indexes experienced a miniature flash crash. We can see this in the S&P and NASDAQ futures. According to Bloomberg, $136 billion in value was set on fire.

The reaction in other markets did not receive as much coverage, but were very interesting. The 30 year Treasury and the Japanese Yen had a near opposite reaction. This is very much like the buy it on a breach behavior that we saw with LinkedIn. Is it surprising Treasuries and the Japanese Yen turn out to be the place to go if something were to happen to The White House and the President and what does that say about the herd mentality? If we view the President as the CEO of the country, it seems a little strange to be buying the “stock” of a company that is in need of a new CEO. Perhaps the market is simply bullish on Joe Biden.

BOT +3 CALENDAR PFE 100 DEC 12/NOV 12 24 PUT @.26

Security professionals are regularly informed that security should align to the business need.  In most cases security professionals consider alignment to be meeting other business units half way or compromising on an issue.  Another way to align to business need is to solve a non-security related problem for another department that has a beneficial outcome for security.

As we discussed earlier, in Security & Privacy Are Dead And Nobody Cares, investors do not care about minor security breaches.  Sony and EMC suffered only in the short term.  Blowing up an oil rig in the Gulf of Mexico seems to harm reputation more than having your corporate or customer secrets stolen.  Revenue is what Wall Street and private equity are looking for.  If the buying public doesn’t care, neither will The Street.  With the economy in the state it is, and the move away from traditional job boards such as Monster World Wide, Inc (NYSE:MWW), LinkedIn will surely drive traffic, ad revenue, and premium subscriptions no matter what data they lose.  We should consider the actual impact of the LinkedIn breach.  Rather than running around screaming they were breached, what was breached should be considered.  In this case passwords to users resumes were disclosed.  Sure, someone could log in as that user and attempt to establish connections with other people for social engineering, etc.  But from the user’s perspective the worst that could happen is someone could make their resume false, or simply delete it, which would mean they need to update their resume again.  So in a way the hackers might have been helpful on some level, depending on who you are in the mix of all this.  Yes, that is an oversimplification for the sake of drama, but ask most users and you will find LinkedIn is not a big deal to them, in many respects.

Technical Analysis

Much to the chagrin of security professionals LinkedIn experienced an uptick in their stock price the day the breach was announced.  Why did this happen? People were logging in to change their passwords and were being exposed to advertising which increased revenue.  The bankers felt that the stock was a buy on that news.  No SecurID seeds were stolen, and no cute dolphins were drowning in oil, which means it’s a buy.  After a nice earnings announcement LinkedIn is on its way back up and has broken out of the trading range it was in.  There’s almost an 80% chance it will touch 115 which is a nice move from 92.50 prior to earnings.  This isn’t the price action in a company that is going out of business because some passwords were leaked or because they’re spending a lot to improve their security.

What is worse than an Infosec breach?

In the scheme of things Infosec breaches are low impact events.  Most companies recover in a few weeks.  Quality problems can cost you even more.    How does a software glitch that loses $450 million and reduces stock value by 80% sound compared to LinkedIn’s problems?  There are larger things that can happen besides an Infosec breach that executives are worried about.  Consumers are also worried about things other than security breaches.  This is one reason why Infosec breaches have lower impact to a stock price than manufacturing or software errors, or accidentally serving up blackened crawfish in oil to gulf coast residents.  Wall Street knows that a little bit of credit monitoring, and banks eating 100% of credit card and account fraud means that consumers will not change their behavior because someone else is paying for their choices.  In economics we call this moral hazard, but that’s a topic for another time.

How to take advantage of this?  One possible way to attack the topic is with a Back Ratio.  The risk is different in this case since the $0 level becomes the lower strikes of a butterfly spread.  This was trading for a credit a few days ago which makes this trade a no lose strategy.  Over the weekend it’s still a $0 + commissions risk if it stays where it is and if it drops even more it could be worth more.  This should be treated like a lottery ticket Butterfly trade.  It’s somewhat unlikely the price drop into the profitable range, but if it does this could be a winner with a max profit of around $100 per spread.

BTU has been in a down channel since February.  Something may change eventually, but until it breaks out of the channel it’s still in a long term down trend.  Two days ago it touched the trend line with a long legged doji pattern.  The next day it closed below the doji and the previous day’s open.  A reversal may be starting.

The MACD has started to roll over, Stochastic, and RSI are also pointing down.  PPS is also giving a sell signal.  There are only 11 days left in July  so that may be taking on too much Gamma.   The Implied Volatility is 61% in August which is close enough to July.  Today we decided to go with a short call vertical with the short strike around 30 delta.  The Aug 26/27 spread looks the most interesting.  We managed to get a fill at .32 per spread just below the highs of the day.  Today the spread closed up 6% from BTU dropping over 1.00.