Bloomberg on BSC Collapse - New

Discussion in 'Wall St. News' started by flytiger, Aug 11, 2008.

  1. Sure companies buy puts to hedge.

    But deep out of the money? And right at expiration?

    That implies they know it's going out of business. And immediately.

    Or it was a really lucky guess on price. And timing. :D
     
    #21     Aug 11, 2008
  2. I agree; but I would like to know who sold these puts. :D
     
    #22     Aug 11, 2008
  3. nkhoi

    nkhoi

    #23     Aug 11, 2008
  4. lol and who bought them
     
    #24     Aug 11, 2008
  5. Cutten

    Cutten

    Exactly. This is a moronic article and most of the people quoted have no clue about how people speculate with options.

    If a financial stock has gone down 50% in a few days and is rumoured to be going insolvent, buying deep OTM puts with the shortest expiry is well worth a punt. Remember what happened to Refco? If you have done a bit of analysis and concluded the company is in serious danger, it's fair bet because the payoff is so huge and a bk is definitely on the cards. If you are long stock, it's a good hedge.

    $2 million is chump change to any decent-sized hedge fund. Many traders have wagered 0.1-0.5% of capital on a 'lottery ticket' like this.

    As a comparable, why not look at options trading in LEH, which *didn't* go bust. What about FNM/FRE/WM etc? The "lottery tickets", which were traded on decent size last month, all expired totally worthless. Will we hear Bloomberg or any conspiracy theorists talking about how the hedge funds got it totally wrong on that one? No, because they are biased, don't do their research, and have no real clue about trading.
     
    #25     Aug 12, 2008
  6. Cutten

    Cutten

    I've often bought deep OTM puts on stocks with a few days to expiry, in cases less panic-driven than BSC in March. I've had no inside edge, just a view that the puts are underpricing the risk of a collapse. The idea that no one does this is just retarded.

    The people in the article obviously can't think in probabilistic terms. They think the puts are only a buy if you *know* BSC is going bust. That's complete garbage and ever since Taleb published "The Black Swan" no one has an excuse for such idiotic thinking. The puts could have been a buy even if BSC only had a 10% chance of being bust. And IMO it required zero inside information to think BSC had a >10% chance of going broke.
     
    #26     Aug 12, 2008
  7. Cutten

    Cutten

    No it doesn't. It implies only that they thought the *chance* of bankruptcy was higher than the chance implied by the puts. So if the put price would allow a 20:1 payoff in the event of bankruptcy, then it makes sense to buy even if you only think there is a 5.1% chance of BSC going bust by expiration. Thinking BSC had a >5% chance of going broke that week was not exactly an irrational bet, given the liquidity rumours and the panic in the market. Similar trading patterns were observed in LEH at the same time (which didn't go broke); same thing happened with financials in mid July.

    Then there's the other possibility, that the puts were bought as a hedge against a long BSC position.
     
    #27     Aug 12, 2008
  8. Good. Now, explain all the FTD's.
     
    #28     Aug 12, 2008
  9. What were the conclusions re unusual options activity on airlines prior to 911? Unusual option activity sells papers. Option traders trade options. BSC was the super bowl. Dozens of high open interest equities result in nothing.
     
    #29     Aug 12, 2008
  10. Inside information is not hard to get, especially for those of us who have brains & are very resourceful. However, the SEC will come after you as the Big Boys Club wants that edge for themselves.

    I don't touch US equity markets anymore, but if I chose to play them again, I would have no illussion about how the game is. While people like you want to play yet refuse to accept the reality, continue deluding themselves and get frustrated at the unfairness. It was never meant to be fair. If you can't stand the heat, get out of the kitchen. It is as simple as that.

    Stop trying to change the character & mentality on which Wall Street was founded. If you don't like it, don't participate.

    Really, what makes you believe that Wall Street owes you a leveled playing field? What makes you think this is possible considering the history of Wall Street and most stock exchanges? Wall Street, in general, rewards those who are ruthless and win at any costs, while penalizing those who try to be nice & fair and play by all the rules.
     
    #30     Aug 12, 2008