CNBC Software Flaw Worth $1 Million?

Strudelkugel writes "BusinessWeek tells the story of one obsessive fan who unraveled a software glitch worth one million dollars. Jim Kraber was a regular CNBC viewer, and when the opportunity arose he took the 'Million Dollar Portfolio Challenge' very seriously. At one point, he was spending 12 hours a day on the contest, using three computers to trade 1,600 different portfolios in a theoretical stock game. His efforts got him into the top 20 finalists, but in the last round of trading he noticed some unusual patterns. 'One trader had a stream of near-perfect picks, consistently placing huge bets on shares that soared in after-hours trading. Kraber suspected the trader and perhaps others were getting help from someone who was changing their picks after the stocks' increases — and he quickly notified CNBC ... Kraber says CNBC rebuffed him at the time, but now it looks like he may have been right.'"

Comments

Re:Stick to poker -- fewer variables...

[Chris Pimlott]

Not true - according to the article, he won $10,000 for winning one of the first round weekly games that got him into the final.

The glitch

[niceone]

Here's 'the glitch' if you don't want to wade through the article:

If you made the selection before the close of regular trading at 4 p.m. EST and left your Web browser open, you could execute those trades after hours and still receive the 4 p.m. closing price. ..... The allegation is that certain traders may have used the technique with companies that were reporting earnings and other important news after the market's close. They could select as many as 50 stocks and then execute trades for only the one or two best performers.

Re:Expected

[SpinyNorman]

Margin is just taking a loan using your existing investments as collateral - nothing to get excited about there.

Personally I don't see what's wrong with shorting - it does provide some balance. Anyway, shorting has its place for regular investors also in the form of "shorting against the box" which means shorting a stock that you already own to lock in a profit - typically for tax purposes. e.g. Say it's December and you own a stock that has appreciated that you now want to sell but don't want to pay taxes for in the current tax year... so you short the stock in December (same amount as you own), then in January you close the short by handing over the shares you already own. What you've effectively done is get the December price, but not actually completed the trade until January, so you've got another year to pay the taxes on your gain.