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vigilant
Joined: 13 Sep 2007
Posts: 2210
Location: Back stage...
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 Posted: Mon Aug 11, 2008 6:00 pm Post subject: Stock Market Put Options:Somebody Knew: 270 Mil Payout |
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This is exactly the same thing that happened with airline stocks right before 911. Perhaps the same traders? Odds are that you will never know. The 911 trades are a matter of record, and easily tracked. Why did nobody ask questions?
www.cryptogon.com
Put Options “Lotto” on Bear Stearns Collapse Paid Out More than $270 Million
August 11th, 2008
I watched another one pop, then, finally, I thought: “This is the scene of a crime for sure.”
—Insider Crimes, Funny Money and Options Rackets
Via: Bloomberg:
On March 11, the day the Federal Reserve attempted to shore up confidence in the credit markets with a $200 billion lending program that for the first time monetized Wall Street’s devalued collateral, somebody else decided Bear Stearns Cos. was going to collapse.
In a gambit with such low odds of success that traders question its legitimacy, someone wagered $1.7 million that Bear Stearns shares would suffer an unprecedented decline within days. Options specialists are convinced that the buyer, or buyers, made a concerted effort to drive the fifth-biggest U.S. securities firm out of business and, in the process, reap a profit of more than $270 million.
Whoever placed the bet used so-called put options that gave purchasers the right to sell 5.7 million Bear Stearns shares for $30 each and 165,000 shares for $25 apiece just nine days later, data compiled by Bloomberg show. That was less than half the $62.97 closing price in New York Stock Exchange composite trading on March 11. The buyers were confident the stock would crash.
“Even if I were the most bearish man on Earth, I can’t imagine buying puts 50 percent below the price with just over a week to expiration,” said Thomas Haugh, general partner of Chicago-based options trading firm PTI Securities & Futures LP. “It’s not even on the page of rational behavior, unless you know something.”
The 57,000 puts that traded March 11 at the $30 strike price and the 1,649 that traded at $25 were collectively worth about $1.7 million, Bloomberg data show. Each put is equal to 100 shares of stock.
`Lottery Ticket’
“That trade amounted to buying a lottery ticket,” said Michael McCarty, chief options and equity strategist at New York-based brokerage Meridian Equity Partners Inc. “Would you buy $1.7 million worth of lottery tickets just because you could? No. Neither would a hedge fund manager.”
During the next four days, New York-based Bear Stearns unraveled in the swiftest investment-banking failure in Wall Street history. Speculation about a cash shortage proved self- fulfilling, causing customers and lenders to demand their money back. Bear Stearns’s stock sank 47 percent to $30 on Friday, March 14. That’s when the Fed moved to stave off a panic by helping the U.S. Treasury arrange JPMorgan Chase & Co.’s purchase of the company for $2 a share, a price unimaginable to the firm’s 14,000 employees and more than 500 shareholders.
In the aftermath, Bear Stearns Chief Executive Officer Alan Schwartz told Congress that the firm was toppled by rumor- mongering and abusive trading. Regulators have begun peeling back trading records, hunting for suspects.
Schwartz and officials at the SEC declined to comment for this story.
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The whole world is a stage...will somebody turn the lights on please?....I have to go bang my head against the wall for a while and assimilate.... |
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barracuda
Joined: 06 Sep 2007
Posts: 5206
Location: Niles, California
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| Posted: Mon Aug 11, 2008 10:52 pm Post subject: |
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Only Schwartz, Paulson, the Fed and the board at the New York Fed had the capability of leaking this information in the first place.No one else. Here we go again. A government-only crime, huge payoff, extremely limited suspect pool: this is very similar to the anthrax investigation, and I expect exactly the same results - none. If there were to be a serious investigation, Schwartz and Paulson et al., would be under present subpoena. I think we can guess the outcome. Fuckers.
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The most dangerous traps are the ones you set for yourself. - Phillip Marlowe |
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elfismiles
Joined: 11 Aug 2006
Posts: 1705
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antiaristo
Joined: 18 May 2005
Posts: 2553
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| Posted: Tue Aug 12, 2008 3:52 pm Post subject: |
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Ah! Timing is everything, isn't it?
Bloomberg wants this dealt with in August.
It could have been dealt with three months ago.
| Quote: | On March 10, 2008, Bear Stearns stock dropped to $70 a share -- a recent low, but not the first time the stock had reached that level in 2008, having also traded there eight weeks earlier. On or before March 10, 2008, requests were made to the Options Exchanges to open a new April series of puts with exercise prices of 20 and 22.5 and a new March series with an exercise price of 25. The March series had only eight days left to expiration, meaning the stock would have to drop by an unlikely $45 a share in eight days for the put-buyers to score. It was a very risky bet, unless the traders knew something the market didn’t; and they evidently thought they did, because after the series opened on March 11, 2008, purchases were made of massive volumes of puts controlling millions of shares.
On or before March 13, 2008, another request was made of the Options Exchanges to open additional March and April put series with very low exercise prices, although the March put options would have just five days of trading to expiration. Again the exchanges accommodated the requests and massive amounts of puts were bought. Olagues contends that there is only one plausible explanation for “anyone in his right mind to buy puts with five days of life remaining with strike prices far below the market price”: the deal must have already been arranged by March 10 or before.
These facts were in sharp contrast to the story told by officials who testified at congressional hearings on April 4. All witnesses agreed that false rumors had undermined confidence in Bear Stearns, making the company crash despite adequate liquidity just days before. On March 10, 2008, Reuters was citing Bear Stearns sources saying there was no liquidity crisis and no truth to the speculation of liquidity problems. On March 11, the Chairman of the Securities and Exchange Commission himself expressed confidence in its “capital cushion.” Even “mad” TV investment guru Jim Cramer was proclaiming that all was well and the viewers should hold on. On March 12, official assurances continued. Olagues writes:
“The fact that the requests were made on March 10 or earlier that those new series be opened and those requests were accommodated together with the subsequent massive open positions in those newly opened series is conclusive proof that there were some who knew about the collapse in advance . . . . This was no case of a sudden development on the 13 or 14th, where things changed dramatically making it such that they needed a bail-out immediately. The collapse was anticipated and prepared for. . . .
“Apparently it is claimed that some people have the ability to start false rumors about Bear Stearns’ and other banks’ liquidity, which then starts a ‘run on the bank.’ These rumor mongers allegedly were able to influence companies like Goldman Sachs to terminate doing business with Bear Stearns, notwithstanding that Goldman et al. believed that Bear Stearns balance sheet was in good shape. . . . The idea that rumors caused a ‘run on the bank’ at Bear Stearns is 100% ridiculous. Perhaps that’s the reason why every witness was so guarded and hesitant and looked so mighty strained in answering questions . . . .
“To prove the case of illegal insider trading, all the Feds have to do is ask a few questions of the persons who bought puts on Bear Stearns or shorted stock during the week before March 17, 2008 and before. All the records are easily available. If they bought puts or shorted stock, just ask them why.”5
Suspicions Mount
Other commentators point to other issues that might be probed by investigators. Chris Cook, a British consultant and the former Compliance Director for the International Petroleum Exchange, wrote in an April 24 blog:
“As a former regulator myself, I would be crawling all over these trades. . . . One question that occurs to me is who actually sold these Put Options? And why aren’t they creating merry hell about the losses? Where is Spitzer when we need him?”6 |
http://www.rigorousintuition.ca/board/viewtopic.php?p=185512#185512
And there's another great thing about timing...
| Quote: | | Where is Spitzer when we need him?”6 |
| Quote: | Spitzer Resigns, Citing Personal Failings
Tyler Hicks/The New York Times
Gov. Eliot Spitzer, with his wife, Silda, announcing his resignation at his Manhattan office on Wednesday.
COMMENTS (564)
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By MICHAEL M. GRYNBAUM
Published: March 12, 2008 |
http://www.nytimes.com/2008/03/12/nyregion/12cnd-resign.html?hp
And from the main quote, above....
| Quote: | On or before March 10, 2008, requests were made to the Options Exchanges to open a new April series of puts with exercise prices of 20 and 22.5 and a new March series with an exercise price of 25. The March series had only eight days left to expiration, meaning the stock would have to drop by an unlikely $45 a share in eight days for the put-buyers to score. It was a very risky bet, unless the traders knew something the market didn’t; and they evidently thought they did, because after the series opened on March 11, 2008, purchases were made of massive volumes of puts controlling millions of shares.
On or before March 13, 2008, another request was made of the Options Exchanges to open additional March and April put series with very low exercise prices, although the March put options would have just five days of trading to expiration. Again the exchanges accommodated the requests and massive amounts of puts were bought. |
And then....
These facts were in sharp contrast to the story told by officials who testified at congressional hearings on April 4
So maybe that's why Bloomberg is doing us the favour of highlighting all this stuff (just like Ron Suskind) in August. |
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wintler2
Joined: 12 Nov 2006
Posts: 1168
Location: 36*51' S 145*44' E
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| Posted: Tue Aug 12, 2008 6:38 pm Post subject: |
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| barracuda wrote: | | Only Schwartz, Paulson, the Fed and the board at the New York Fed had the capability of leaking this information in the first place.No one else. Here we go again. A government-only crime, |
Are you sure? I think US gov in its rescue package was merely following 'sound advice' from business end of town ("send money now!"), and there would have been quite a few knowing what was coming down the pipe.
| Quote: | | huge payoff, extremely limited suspect pool: |
agreed, the limited suspect pool crossed with some transperancy (idealistic, i know) would flush out the besuited crims. | Quote: | | ..I think we can guess the outcome. Fuckers. |
Most likely yes, but i haven't written off the righteous rage of the ripped off just yet. Between the retirees, the pension funds and the class action lawyers, i'm willing to try all my enemies enemies as allies. |
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justdrew
Joined: 24 May 2005
Posts: 2749
Location: unknown
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| Posted: Tue Aug 12, 2008 8:38 pm Post subject: |
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| well it might suck that they made 270 mil, but it might be good. maybe someone cool did it. After all, they did put Bear fucking Sterns out of business, and that's a damn fine achievement in my book. |
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vigilant
Joined: 13 Sep 2007
Posts: 2210
Location: Back stage...
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| Posted: Tue Aug 12, 2008 8:44 pm Post subject: |
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On or before March 10, 2008, requests were made to the Options Exchanges to open a new April series of puts with exercise prices of 20 and 22.5 and a new March series with an exercise price of 25.
Exactly "who" made the requests, on behalf of whom? That might answer a lot of questions. Why would anyone request that such a risky options play be made availabe unless they planned on cashing in???
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The whole world is a stage...will somebody turn the lights on please?....I have to go bang my head against the wall for a while and assimilate.... |
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barracuda
Joined: 06 Sep 2007
Posts: 5206
Location: Niles, California
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| Posted: Tue Aug 12, 2008 9:35 pm Post subject: |
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| wintler2 wrote: | | Are you sure? |
From Bloomberg:
| Quote: | On Tuesday, March 11, when Federal Reserve Bank Chairman Ben Bernanke attended a luncheon with Wall Street executives at the New York Fed and the CBOE listed its $25 Bear Stearns put option, McCarty of Meridian red-flagged Bear Stearns in his ``MEP Noteworthy Option Activity'' memo.
What got McCarty's attention that day was the volume of put trading in strike prices of $35 and below. Investors traded 84,109 puts at strike prices that would require a calamitous drop to make money, he said.
Big Bets
``Somebody placed some big bets that day that paid off,'' McCarty said. ``The question is, did they make it pay off?''
On March 14, when Schwartz sought emergency funding, Bear Stearns opened at $54.24 in NYSE trading. That day, the CBOE listed eight new put options that expired in five days with strike prices that ranged from $22.50 to $5. The lowest was 90.7 percent below the opening stock price.
Gail Osten, a spokeswoman for the CBOE, declined to say who placed the order for the options.
``Nobody in their right mind would buy that put unless you knew what was going down,'' said Ray Wollney, Olagues's partner at Truth in Options. On Friday, March 14, a total of 6,303 of the March $5 Bear Stearns puts traded.
That night, Schwartz got a call from Treasury Secretary Henry Paulson making it clear that Bear Stearns had until Sunday evening to find a buyer because the Fed planned to withdraw its financial backing. Paulson, who didn't want the government to appear to be bailing out a Wall Street firm, then brokered the sale to JPMorgan.
Convincing the Board
Schwartz and Bear Stearns Chairman James ``Jimmy'' Cayne convinced fellow board members by explaining that their only alternative was to accept the deal or face bankruptcy. The agreement was announced Sunday night.
Options bets that looked irrational on Friday proved brilliant on Monday, when the shares traded between $3 and $5. By Wollney's calculations, the traders who spent $35.8 million on the deep out-of-the-money puts reaped an estimated $274 million windfall from the plunge in Bear Stearns.
Peter Chepucavage, a former general counsel for compliance at Nomura Securities and onetime SEC lawyer, said the Bear Stearns bets were neither smart nor lucky.
``When you buy $5 strikes when the stock is trading over $50, you either have to be manipulating, or you have to have insider information,'' said Chepucavage |
My guess would be that the leaker is mentioned in these paragraphs.
_________________
The most dangerous traps are the ones you set for yourself. - Phillip Marlowe |
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vigilant
Joined: 13 Sep 2007
Posts: 2210
Location: Back stage...
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| Posted: Tue Aug 12, 2008 9:50 pm Post subject: |
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My guess would be that the leaker is mentioned in these paragraphs.
My guess would be that the leaker and the trader might be one and the same....Either directly, or through a back door channel.
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The whole world is a stage...will somebody turn the lights on please?....I have to go bang my head against the wall for a while and assimilate.... |
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wintler2
Joined: 12 Nov 2006
Posts: 1168
Location: 36*51' S 145*44' E
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| Posted: Wed Aug 13, 2008 5:54 am Post subject: |
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| barracuda wrote: | | My guess would be that the leaker is mentioned in these paragraphs. |
Agree, but thats a bigger sweep of crooks than just govt.
| vigilant wrote: | | My guess would be that the leaker and the trader might be one and the same....Either directly, or through a back door channel. |
That'd be a reasonable line of inquiry, assuming we had a justice system worthy of the name. Heres hoping those ripped off get mad enough to get activist. |
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