Conflicted Reactions To Scorpio Tankers CEO’s Call Option Buying Spree

by | Apr 30, 2020 | General | 0 comments

It is very interesting how different people react to different things. When I was performing my due diligence on Scorpion Tankers, I noticed the following press release.

Mar 10, 2020

MONACO, March 10, 2020 (GLOBE NEWSWIRE) — Scorpio Tankers Inc. (NYSE:STNG) (“Scorpio Tankers,” or the “Company”) announced that the President of the Company, Robert Bugbee, has purchased call options on 315,100 common shares (or 3,151 call option contracts) of the Company with strike price of $15.00 and an expiration of January 2021 for the consideration of $1,963,291.

Scorpio Tankers Inc. Announces Purchase of Call Options by President of the Company

My heart started racing with excitement because I never saw anything like this before. Usually, CEOs just buy the common stock. If the CEO of Scorpio Tankers was betting $2 million by buying call options, then I felt this was extremely bullish.

Just in case you don’t know, a call option is financial contracts that gives the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other asset or instrument at a specified price within a specific time period. In this case, Bugbee paid $2 million to have the right to buy 315,100 common shares of Scorpio Tankers at a price of $15 before January 2021. At the time of the call purchase, the stock price was trading for $15.

The excitement was my original response without the outside world influencing my thinking. Then, I learned that I was supposed to view his call option buying as shady, irresponsible, or illegal.

While I have respect to all the commentators, I still feel excited that Bugbee did that. This showed me that he had a lot of guts to bet big on his conviction. Does this make me a bad investor? Does this make me have no ethics? I hope not, but I like the guy and I am sorry if my opinion does not jive with yours. It worked out very well for Bugbee considering that stock price almost doubled since then. To be perfectly honest, I thought about doing the same thing when the stock reached $15, but instead I bought the stock directly.

I think that it is easy for us to get sentimental about things and lose focus on what matters which is the fundamentals of the actual business. For example, years ago, before the iPhone, I was studying Apple, Inc (AAPL). I read books about the company and I even talked to the customers. This was when people where buying iPods. I really like the company but I didn’t buy it. You know why? Because I read in one of the books that Steve Jobs cheated Steve Wozniak.

Steve Jobs had been approached by Atari to create a new game. Jobs turned around and had Wozniak do all the work but lied to him about how much Atari paid him so that he could pay Wozniak less than half.

This is the reason why I did not invest in Apple because I thought that Jobs was just an awful person. I did all this work studying the company and I did not invest in it because I was sentimental about something that did not matter.

I see Bugbee’s buying of call options the same way. If you didn’t buy the stock of Scorpio Tankers because of your feelings about something so unimportant, then you are the one that missed out. Bugbee sent you a huge message, “The stock is cheap and I am betting $2 million that it will go up.” If you didn’t buy, you didn’t hurt him. You didn’t hurt the company. You hurt yourself the same way I hurt myself by not buying Apple.

Disclosure: Long STNG

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About Mariusz Skonieczny

Mariusz Skonieczny is the founder of Classic Value Investors.