Someone bought 5000 LEH 10 puts for 1.45.

They were still there and bid for thousands at the close.

 

I saw the puts trade. Cagey buyer hangs back on the bid, and then pounces for more.

What "leg" are you referring to?

 

Are you under the impression that he just sends a bid to the market and hopes someone hits it? On an order of that size it’s been shopped all over the street back and forth already and if there was a lot of interest in selling those they'd cross them. Everyone knows the bids are there so he's not surprising nay one and pouncing on anything.

 

Now that Lehman's bankruptcy is a show on CNBC, it's good to look back on these "lucky" trades.

 

Someone just bought over 2,000 Goldman Sachs puts (GS Jan2 65 puts).

For the puts to be in-the-money, the stock will have to be under $65 by January.

Same method as the LEH puts listed above. Scoops up any "size" offers, and then tries to look benign by hanging back and bidding for a few hundred on the bid.

 

Dude, 2000 65 puts is 13mm in notional - that's like retail size. I just don't see anything to talk about.

And btw, for them to make money, the stock would have to be below 64.7 or so, not 65

 

Goldman subpoena this morning.

The puts referred to above are not in-the-money until GS is under $65.

Who thought LEH could ever go under $10?

 

Well, thats flawed logic. Vol-wise these puts are super-rich, so it's not a good vol play. It's not a good delta play either - if you are bearish GS, just short the stock (gonna be cheaper) or buy ATM or close to ATM puts. Otherwise, you are willing to pay for a lottery ticket that does not reflect any straightforward market view

 

if GS starts heading toward 100, how much is that trade gonna be worth?

 

Regardless of Sle's comments (I know that he is correct technically), the whiff of 2008 right now is very, very strong. This market has been running higher on fumes driven by this Bernanke QE machine for many, many months. It's also no coincidence gas prices are at the upper limit again which gets all the plebe's up in arms (honestly without high gas prices, the majority of the population would have no clue).

If you happen to believe that almost all financial crises are manufactured events (with some lead time for the priviledged few), then a big bet on some "outlier" puts makes all the sense in the world.