Possibly The Most Suspicious Trades Of All Time
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The news agency reports that suspicion has centred on a number of put options placed on Bear Stearns in the week before its collapse. Collectively, traders are said to have shelled-out some $35.8m on deep out-of-the money puts and collected an estimated $274m when the firm's share price nose-dived as clients pulled funds over liquidity concerns fuelled by market rumors.
Bloomberg highlights one trade in particular, which does look somewhat suspicious - an unknown trader placed $1.7m on March 11th giving him (or her) the right to sell 5.7m shares in Bear for $30 each and 165,000 shares for $25 each 9 days later. At the time the trade was made, Bear's shares were trading at $62.97. Come 20th March, the share price was down to around $5, after the firm was forced into the arms of JPMorgan Chase (the final acquisition price was $10-a-share).
The big question here, of, course, if whether the traders who executed these trades were behind the rumors that finally did Bear in. To put it into context, Bloomberg quotes Thomas Haugh, general partner in options trading firm PTI Securities & Futures. Haugh said: 'Even if I were the most bearish man on Earth, I can't imagine buying put options 50% below the price with just over a week ago. It's not even on the page of rational behaviour - unless you know something'. Former Securities and Exchange Commission Enforcement lawyer Brent Baker said: 'On CSI Wall Street, the options are the DNA'. And Peter Cepucavage, former general counsel at Nomura Securities gave US regulators a steer, saying: 'Track the rumors. Follow the puts'. The saga continues.............
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