We stand by our statement that no one killed Bear and then had a celebratory breakfast at Denny's afterwards but apparently there is a vague chance someone killed Bear, and then went to a safe house to lay low, count his money and plan an attack on Lehman.* Bloomberg reports that on March 11, *someone* bet $1.7 million that BSC would suffer an unprecedented drop within a matter of days. That *someone* was so confident that Bear was going down that he/she/they used put options that gave purchasers the right to sell 5.7 million shares of the firm for $30 each and 165,000 shares for $25 each nine days later, less than half the $62.97 closing price on March 11.
"Even if I were the most bearish man on Earth, I can't imagine buying puts 50 percent below the price with just over a week to expiration,'' Thomas Haugh, general partner of Chicago-based options trading firm PTI Securities & Futures LP told Bloomberg. "It's not even on the page of rational behavior, unless you know something.''
Former Bear CEO Alan Schwartz, who at one time was under the impression that BSC was drowning in liquidity and was understandably flummoxed about rumors to the contrary, told the Senate banking committee on April 3 that there are ``lots of reasons why people could have a financial motivation to induce panic." These reasons include but are not limited to a decade old drug deal with Cayne gone bad and sheer boredom. If you polled a random group of people on your firm-monitored buddy list, I'm sure they'd all have some petty reason to want to take down Bear. But whose was the pettiest?
Let's play SEC and solve this one. Since this is a story based on rumors (not the Bloomberg article specifically but The Bear Story in general) we might as well start circulating a few more. To get the ball rolling, I'll name a few now and then you can add to the list and/or give reason why any named should be removed:
-- Goldman Sachs
-- SAC
-- Charlie Gasparino
-- Tudor
-- Warren Spector
-- Bryan Burrough (THINK ABOUT IT)
All improbable? Probably. And we want more than rumors (that you've probably already heard). We want the truth.
**Note to representatives of any of the firms named above: if you take issue with your inclusion on this SPECULATORY list, save us the quarter and call us to say, "It wasn't me." 212-334-1871 ex. 5 (you have to leave a message so it will get forwarded to my cell). Or, if you are an investor with information, get in touch. Or a counterparty. As we get assurances from reliable sources, we'll cross names off the list.
Bear's Options Action [CNBC]
Bringing Down Bear Began as $1.7 Million of Options [Bloomberg]
*Kidding?
Posted by guest , Aug 11, 2008 12:47PM
Warren J. Spector.
Posted by a dead horse , Aug 11, 2008 12:48PM
It was the Jews
Posted by guest , Aug 11, 2008 12:56PM
So when the stock hit 2 they were looking at somewhere around a 150 mill gain. Not bad. It doesnt seem to crazy for me to think a manager with 5-10 billion AUM would be willing to gamble less than a tenth of 1% on this without insider knowledge.
If the insiders knew, why only bet 1 million why not more?
Posted by guest , Aug 11, 2008 1:00PM
because after a while the markets pull back...if you keep buying the puts someone has to be willing to sell them to you at a decent price
Posted by blndebnker , Aug 11, 2008 1:01PM
@3 - Perhaps to not draw attention? Better to take the chance and reap a killing from $1mm bet that you get to keep than try to be greedy and stake perhaps $50mm and get noticed.
Posted by guest , Aug 11, 2008 1:04PM
@3 I bet you're also wondering why they didn't short 100% of the shares outstanding too...
Posted by AJ , Aug 11, 2008 1:05PM
Why only bet $2 million and why pick such a close expiration date? If you were part of a concerted effort to take down Bear, I'd assume you'd have the resources to buy a lot more options, and not just the way out of the money, near term expiration ones. Also, why pick the ones expiring in 10 days? You might know that Bear is faltering, but can you really pinpoint the day it collapses? Seems like dumb luck
Posted by guest , Aug 11, 2008 1:07PM
longer dated options cost more...ergo you dont make as much. making the someone behind the curtain tale that much more intriguing-aka a big HF that bet against bear at the same time pulling their PB business from them and starting whispers
Posted by guest , Aug 11, 2008 1:10PM
...meaning the precise nature of the bets is uncanny and almost outside the range of normal possibilities. to take on that much short-dated OTM puts without knowing anything
Posted by blndebnker , Aug 11, 2008 1:12PM
@7 - I'm sure they didn't know the precise day and that part probably was dumb luck. What it implies to me is that the threat was perceived to be imminent.
Posted by guest , Aug 11, 2008 1:13PM
@2 It always is
Posted by AJ , Aug 11, 2008 1:14PM
I feel like you'd have to be an insider to do this since you'd need to truly know the extent of the damage the hedge funds had done to the balance sheet... if you were an outsider, how could you know how effective the attacks were?
Posted by FUNdamental , Aug 11, 2008 1:15PM
the better question is, if you knew enough to take that position, and thought enough to keep it small not to get caught...why wouldn't you have used puts that were closer to the current price, and then also have puts on the s&p and throughout the sector anticipating the ripple effect? You'd be a lot less likely to get caught than this smash and grab job. Stupid is as stupid does.
Posted by guest , Aug 11, 2008 1:18PM
Or maybe a CRO wanted some extra cover for CDOs they had sold to BS. Or maybe they wrote a CDS on BS and wanted to hedge gamma/ vega. Or maybe they had loads of collateral at BS and were looking for disaster insurance...
Remember kids, guns don't kill people...
Posted by guest , Aug 11, 2008 1:22PM
Nominating Warren J. Spector. Knew the books better than anyone else, inside or outside BSC.
Posted by EricM , Aug 11, 2008 1:30PM
@13, What's to say they didn't? Or were prepared to lose the entire $30 strike position to make a bunch at $50?
Posted by guest , Aug 11, 2008 1:34PM
who cares.
bess will you do a post on the beach volleyball players bikinis.
Posted by AJ , Aug 11, 2008 1:34PM
@16 Why draw attention to yourself? It was bad enough that I just pulled a March 11 WSJ blog post that said "Today, more than 17,000 March put options at the $30 strike price have traded, an exceedingly aggressive bet on a sharp downturn in the stock, lately traded at $58.36 — particularly as those options expire next week."
http://blogs.wsj.com/marketbeat/2008/03/11/financials-exhale-except-bear-stearns/
Posted by guest , Aug 11, 2008 1:38PM
@17-- see french post
Posted by guest , Aug 11, 2008 1:38PM
My guess is that it was Cayne's pot dealer trying to hedge counterparty risk.
Posted by bank_teller , Aug 11, 2008 1:45PM
it was hank
Posted by guest , Aug 11, 2008 1:54PM
Could it be Joe Lewis hedging part of his position?
Posted by guest , Aug 11, 2008 2:03PM
Clearly there should be a decent paper trail for these trades, so it shouldn't be too hard to figure out who made the trades.
I wouldn't be surprised if #22 above is right.
Posted by EricM , Aug 11, 2008 2:04PM
@18, What if you didn't think you were going to take out the company, just wound it long enough to make the higher bet pay off? In that scenario, you need the attention to make the money. You plan to draw just enough attention to the idea of a sharp downward move, you're going to get paid off at 50, and then ...oops all hell breaks loose. It just seems to me that unintended consequence is as good an explanation based on the information we have as an intentional plan, at least at this point.
Posted by guest , Aug 11, 2008 2:38PM
Does the article imply that someone ---in the financial community for God' sake---- knew or was trying to get the stock to collapse???????
~The Forehead Slapper
Posted by guest , Aug 11, 2008 2:40PM
@25-- top 3 guesses
Posted by guest , Aug 11, 2008 2:40PM
Jessie Jackson & The Rainbow Coalition
Posted by miami , Aug 11, 2008 2:45PM
cheap disaster insurance, there were already 3 major banks refusing novation CDS trades with Bear. Could have been simple hedging.
Why did the exchanges list $5 puts so soon to expiry if it was so 'ZOMG CAN NOT HAPPEN WTF BBQ?'
Obviously, they thought it was a possibility.
Posted by guest , Aug 11, 2008 2:57PM
@22 - good call
Posted by guest , Aug 11, 2008 2:58PM
Its either the former CFO, CEO, or a board member of bear stearns. Thats stating the obvious.
Posted by guest , Aug 11, 2008 3:05PM
It could be a seller of CDS looking to hedge or someone with an account at bear worried they would not be able to move it easily.
Posted by guest , Aug 11, 2008 3:18PM
Warren Spector sent me an email asking for a list of non-extradition countries. Think he is up to something?
Bruce Wayne
Posted by guest , Aug 11, 2008 3:20PM
It was a speculator.
Posted by guest , Aug 11, 2008 3:25PM
I don't think it was Joe Lewis. The old currency trader saw Jimmy Cayne a few times before the collapse and after the $2 sale to JP Morgan. I don't think Lewis is a consummate actor.
Posted by mrpink , Aug 11, 2008 3:46PM
Ralph Cioffi? Nah.. He's blameless!
Warren Spector? Probably.
-mrp
Posted by guest , Aug 11, 2008 3:55PM
Uh, why the fuck wouldn't you buy otm puts? how is this even a story? someone bought in the money put on a company rumored to be in trouble? What scandal next, some one bought health insurance because they thought they might get sick one day?
Posted by guest , Aug 11, 2008 4:25PM
#36 Wrong! It's someone buying health insurance and getting the plague the next day.
Posted by guest , Aug 11, 2008 4:43PM
#36
"...in the money put..." BSC was north of $60 and the puts were at 30 and 25. You must be an Ivy Leaguer because most of us with an education worth a shit know that's not "in the money".
Posted by guest , Aug 11, 2008 4:47PM
@ 37: Right but if you already knew you had plague, you would buy plague insurance (ie: OTM puts) not general health insurance (ie: ITM puts). That is to say if know volatility is about to increase you would want the options with relatively low gamma, in anticipation of its increase.
Am i missing something?
Posted by guest , Aug 11, 2008 4:50PM
Oh i thought it said above Bear was down to 25 and they bought puts at 30. My bad.
Posted by guest , Aug 11, 2008 6:45PM
If it was an insider we'd have seen the perp walk already. the trade was noted real time. the shooter got paid.
Posted by guest , Aug 11, 2008 7:58PM
I definitely think this was soemone with inside info. Nobody buys oom puts to open that are that close to expiring.
The fact they were dead in a week is the key. If you were worried about your long BS postion you might buy out of the money puts but they would be much futher out unless you had some inside info that a major event was going to occure in the next week.
They don't always get caught. Remember after 9/11 a big story was the huge increase in puts bought in United airlines and other companies hurt by 9/11.
Then it disapeered. Prob. memebers of the Saudi Royal family or something.
And for people saying insiders can't be involved because it was too obvious -- I was working for one of the now troubled/bank/brothers and we had a customer going crazy selling straddles (bets that the stock would drop) We couldn't even fill the orders before the next one came in. It really was a fun, crazy day.
Then they next day the stock opened doen $20 bucks and we had a lot of people who were really pissed at us.
Then the scroll...XXXX company investigated for insider trading...
XXXX company CEO at head of scandal...
XBros brokerage at middle of scandal as XXXX CEO's broker
The CEO was the customer selling the straddles and was caught at the airport trying to fly to Israel. He was also shorting the stock like crazy. The CEO couldn't have attracted more attention to his crimes if he set himself on fire.
Posted by guest , Aug 11, 2008 8:36PM
Chuck Norris did it...
Posted by guest , Aug 12, 2008 11:20PM
Hmmm, guess that "Bear Trap" book isn't so off the mark after all. Can't wait til it comes out to see if the anonymous writer accuses any hedge fund outright.