Back in March, someone bet $1.7 million worth of options in Bear Stearns that the firm’s stock would collapse within days. Traders say the likelihood of the put paying off was so low that the bettor had to know something.*
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.
*Not sure we buy this logic: Some options traders trade in and out dozens of times a day, let alone over the course of a week. For the put to pay off, Bear Stearns just had to drop sharply: The value of the put would have increased, regardless of whether it was in the money. So we’re not persuaded this is the smoking gun they’re looking for.
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