Thursday, March 27, 2008

Merrill Downgraded Again, But Real Story is Lehman

Although Merrill is set to report earnings in April, and analysts persist in making up numbers to show that they slashed earnings before the earnings release, the real story in the options market is Lehman. 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. 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. What's the story? Rumors must be flying around about Lehman's liquidity. Are the rumors true? Will the rumors be so persistent that they will kill Lehman just like they did Bear?

4 comments:

Oscar said...

Good news for LEH: they didn't go to zero today!
Bad news for LEH: the market is open tomorrow!

njdoc said...

K10, as a finance insider, what do you think will be the outcome?

K10 said...

njdoc: thanks for posting. I mention in today's update that I'm not sure of the outcome due to the fact that despite denial, the rumors themselves can become an investment bank's downfall. The rumors are definitely out there. I received several emails from insiders that heard the rumors of a liquidity problem yesterday morning. However, given the positive results of the Fed's auction yesterday showing a lack of a financing panic in the money markets, I doubt that the rumors are true....Yet

njdoc said...

Thanks k10