Shares in Lehman Brothers sank nearly 6% Wednesday to $39.56 after several analysts downgraded the investment bank, warning of a Q2 loss due partly to the poor performance of hedging positions on its large mortgage exposure. Susan Roth Katzke, a Credit Suisse analyst, said she expects Lehman to post a Q2 loss of 60 cents per share. Katzke, who previously expected a profit of 67 cents per share, said the decline would be driven by a $900m loss in Lehmanâs fixed-income business. Erin Callan, Lehman CFO, has said publicly that Lehmanâs previously successful hedges are no longer performing well. Lehman reports earnings in early June. Shares in other investment and commercial banks also declined on a day of broad declines across the stock market, although Lehman saw the biggest drop. http://ftalphaville.ft.com/blog/2008/05/22/13247/lehman-shares-down-on-loss-fears/ http://www.ft.com/cms/s/0/9c9380c4-2789-11dd-b7cb-000077b07658.html?nclick_check=1 900 million ? Peanuts !
How? Ideally you make more money on one leg of the hedge than what you lose on the other leg. That's called convergence. Sometimes the "hedge" diverges, similar to what happened to LTCM.
Knock, Knock!! Opportunity knocking. I put a couple hundred shares in my IRA. Look at the long term chart on a semi-log chart.
Yes, it has dipped below but has always closed the month above it, SO FAR. That's why I put it in my non-leveraged, long term investment account.... my IRA. I'm not at all suggesting you trade it or buy calls.