The Case of the Mysterious Lehman Rumors

Discussion in 'Trading' started by ASusilovic, Oct 24, 2007.

  1. The pump and dump is a classic Wall Street trading move. The reversed pump and dump is a little less common.

    Yet Lehman Brothers appears to have been the target of that scheme on Wednesday, according to’s Jon Najarian. The scheme, if there was one (and we’re not saying there was), involved spreading a rumor that the investment bank would announce a $7 billion write-down a la Merrill Lynch. Its share price dropped shortly thereafter. And it gets interesting from there.

    According to Mr. Najarian, the Lehman rumor hit the markets at about 10:40 Eastern Time, prompting the firm’s shares to fall to $54.07 from $58.54 for the next 35 minutes. Lehman subsequently denied that any write-down announcement was in the offing.

    During that 35-minute window, a mass of November 55 and 50 puts, or options to sell Lehman stock at those strike prices, were quickly sold on the market as their value rose.

    Mr. Najarian said that the November 50 puts rose to $1.50 from 55 cents during that window, before settling down at $1. The November 55 puts climbed to $3.50 from $1.40 during the 35-minute window, though they have since fallen to about $2.30 as demand returned to normal.

    Other firms — Goldman Sachs, Bear Stearns and Morgan Stanley — have also been the subject of those rumors, he said. Again, it’s not clear that an organized scheme was behind the rumors. But if there were, someone made a tidy profit.
  2. You could say it was a "sympathy" move with those stocks because they each fell at the same goes one, so go the others. It remains to be seen if the others set aside money to cover losses. They've got to be careful not to disturb their bonus pool. Besides, nobody's going to feel any sympathy for them anyway.
  3. "sympathy" move....bahahahaha....Don´t have any pity with them, too.
  4. Those poor IBs might get smaller bonuses this year. :( :'( :( :( :( :( :(