Sunday, September 14, 2008

Lehman Brothers Bankrupt


I had a short dated put on these clowns that I got "chickened out" of when gov/fed/treasury interventions sent the financials (lehman included) soaring.

What I "learned" was that shorting financial companies is very dangerous -- they are experts at raising additional money and manipulating their share prices. In the longrun, there is no "free lunch" and physics will take over. The "problem" is, predicting when exactly rationality, truth, and accounting laws will be inforced is pretty difficult in this environment.

If you're going to bet on one of these fools going down it's best to catch them in a period of relative calm (when the implied volatilities are low) and buying long dated puts (LEAPs).

Of course, that's not exactly 100% safe either. Witness what happened to Merril Lynch today. Bank of America came in and paid up a 70% premium to buy them out. This is baffling that you would pay such an absurd premium for a company that was going to be a single digit midget as soon as the shorts were done with Lehman and turned their sites on the next weakest link....Be interesting to see how many of the bad debts are backed by BAC and how many of them they attempt to foist off onto another organization


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