Someone bought 5000 LEH 10 puts for 1.45.

[wilburbear]

Symbol "whemb".

LEH would have to go 1.45 under $10.00 (i.e. $8.55) for this position to show the first penny in profits.

 

[GTS]

Quote from wilburbear:

Symbol "whemb".

LEH would have to go 1.45 under $10.00 (i.e. $8.55) for this position to show the first penny in profits.

Uh, no.

 

[wilburbear]

Quote from GTS:

Uh, no.

Please explain.

 

[bhristov1]

That would only happen if that individual held the options to expiration. He could just as easily sell them tomorrow if LEH falls another 10% at a premium of 3 or something doubling his money in 24 hours.

 

[USAtrader]

Quote from wilburbear:

Please explain.

Your statement is correct only as it regards day of expiration.

 

[GTS]

Quote from wilburbear:

Please explain.

Do you understand how options are priced?

If puts become worth $2.00 then the position is profitable. Do you think the stock has to go to $8 for the puts to be worth $2?

 

[wilburbear]

Quote from USAtrader:

Your statement is correct only as it regards day of expiration.

That's what I meant. I'm assuming he's holding the position.

 

[makloda]

Unfortunately we will never know the motivation for such a trade.

A directional trade (short)? A mutual fund hedging their long exposure? A hedge fund hedging their counterparty risk on CDS they own with LEH on the other side?

 

[hilojack]

Quote from makloda:

Unfortunately we will never know the motivation for such a trade.

A directional trade (short)? A mutual fund hedging their long exposure? A hedge fund hedging their counterparty risk on CDS they own with LEH on the other side?

Probably more like a head-fake. Shorts being induced to help with the squeeze. Lehman ain't bear.

 

[El OchoCinco]

Quote from wilburbear:

That's what I meant. I'm assuming he's holding the position.

But it still involves a misunderstanding of options on your part. Assuming that was a lone purchase and not part of some other position/hedge, the person who bought it would LOVE for the stock to get to below $10.00, a drop to $25 on vol spike would be more than enough for the person to make a killing and that could be the bet. IN other words the person chose a cheap OTM option play to be long LEH vols and directional bias.

Your assumption that he or she is holding the position because they expect the stock to be below $10 by expiration is a major assumption since the holder is can make good money on a much smaller dip if vols cooperate. So the position is not a bet that LEH goes to $8.55, but a bet that LEH has a potential spike down in its future.