The action in Lehman Brothers is more evidence about how unsteady markets are these days. Shares of Lehman Brothers fell nearly 10 percent early this morning. The rumor spread that the bank would make an announcement this morning, and many assumed (or encouraged others to assume) that it was going to announce more write-downs. This sparked rumors that Lehman Brothers could see a Bear Stearns-style run on the bank, with customers and counterparties bailing out. Options traders started snapping up puts, and shortly afterward the shares plunged.
"Much like the bets in the options market that predicted Bear's demise (please refer to my prior posts that pointed these out before the institution's near collapse), traders are betting that Lehman may be facing the same situation soon, in the next 22 days," the Mock the Market blog explains. "Nearly every out of the money put has traded furiously today, with a particular emphasis on the ap 20's, which have changed hands nearly 10,000 times today with several hours remaining in the trading day."
Lehman spokeswoman called the rumors "totally unfounded" and even blamed short sellers for spreading rumors. The market seems to have bought this line, pushing the stock back from its lows. Some are skeptical, however, noting that Bear Stearns made similar noises even as it plunged toward bankruptcy. Companies love blaming shorts and claiming that they are pushing down stock with rumors, but there's seldom any hard evidence of this. The media allows companies to get away with these claims without ever demanding that they substantiate the claim. Lehman's no exception.
"There are a lot of rumors in the marketplace that are totally unfounded. We are suspicious that the rumors are being promulgated by short sellers of our stock that have an economic self interest," Kerrie Cohen, a spokeswoman for Lehman Brothers, said.
We know that the rumors weren't completely unfounded. Lehman did issue a press release today. Only it wasn't about losses. Instead Lehman announced that Mark Bourgeois had been hired as the new co-head of global institutional distribution. (That's an awesome banker name, by the way. Bourgeois.)
Posted by guest, Mar 27, 2008 1:28PM
the july 17.50-40 put spread traded about 10000 times