Question

A few months ago, Pedro's Pizza House, a large nationwide chain of restaurants, purchased one of its competitors, Italian Stallion Pizza Stations, for $800 million. Italian Stallion stockholders got a very fair deal for their stock they owned in the company. However, the purchase was not without its problems. An issue arose when it was disclosed that somehow a member of Pedro's management team mentioned the deal to a person he sat next to on a flight from LA to Seattle. That person called five of his relatives and several friends. They quickly bought shares of Italian Stallion and purchased the stock before the acquisition became public. These actions are called _________.

a) acquisition stalking
b) pro-current procurement
c) insider trading
d) moral impropriety

Answer 1

Hello there!

Your question asks what kind of actions the people took with the stocks.

Answer: C). Insider trading

The reason why answer choice "C). Insider trading" is the correct answer is because the person is performing actions that can lead to automatic success in the stock market.

Insider trading is getting the knowledge of a business or company before hand and making changes to one's stocks in order to keep making profit. People do insider trading in order to have an advantage with their stocks with information that is confidential. Insider trading is ILLEGAL and will result in time in prison, and will also have criminal fines.

Let me explain insider trading for you in an example. For example, Bob has stocks from Samsung, he found information that Samsung has been having a rough time keeping their business higher than Apple, so he sells his Samsung stocks before the stock value decreases. He would be performing insider trading because he used information from the business in order to sell his stocks before the stock value decreases, and that will cause him to lose money if he doesn't sell it.

In your question, people got the information that the Pizza place was purchased by a nationwide pizza place, which means that the stock will increase its value. Therefore, with the information they got, they bought a stock from the Italian Stallion Pizza Stations before the stock price increases because they know they'll make profit from it, due to the information that they heard on the plane.

I hope this helps!

Best regards, MasterInvestor