Comments on: "Bankruptcy Puts" on Merrill

By: Anonymous

Anonymous — Sun, 23 Nov 2008 06:50:00 +0000

It’s a great trade. BofA is a dumb company that buys other pretty dumb companies and makes them very dumb. BofA’s dumb luck is about to run out.

By: Anonymous

Anonymous — Sat, 22 Nov 2008 18:39:00 +0000

bofa has allegedly promised merrill employees near 100% of last yr’s bonus…and last yr’s bonuses werent that bad at all for merrill (down 20%)…this is nothing short of an outrage…a mtge trader named rubin lost 380mm in 1987 and the mer stock price collapsed to $2 a share…in the past 18 months, merrill has lost over 65bln in writedowns. that merrill has been told and expects decent bonuses is just unthinkable to me..this is an outrage that should feature on 60mins…wall st should strongly consider its compensation plans because a witchhunt is sure to follow if bonuses are paid.

By: DD

DD — Sat, 22 Nov 2008 17:58:00 +0000

Actually, you stated “it was a curiosity”….and followed it up with:

“But remember, credit default swaps on Treasuries were once seen as a curiousity too, and now they trade actively enough to be seen as a meaningful barometer.”

If you came across such a post, whereby a journalist was drawing the whiff of a conclusion based on an anonymous trader buying 15,000 calls…and the journalist reminded her audience that this action while being a “curiosity” could be seen as a meaningful barometer…and then that journalist segued into further “analysis” that MER just might be on the cusp of a wild rally….you’d use the post as Exhibit A for shoddy analysis.

By: Yves Smith

Yves Smith — Sat, 22 Nov 2008 17:27:00 +0000

DD,

I said very clearly this was a curiosity. I find the fact that such low price puts even exist to be intriguing.

By: JimK

JimK — Sat, 22 Nov 2008 16:45:00 +0000

This play is not only happening in Merrill, but Dec 2.5 Citi put volume was also off the charts with implied volatility above 300%. Given the cost of the puts at almost $1, Citi common will have to sink into oblivion for the bet to really pay off.

By: DD

DD — Sat, 22 Nov 2008 13:59:00 +0000

And here's one more thing:

Don't forget about the problems in the tech sector. On Thursday, my cousin's husband bought 10,000 shares in the Ultra Short Nasdaq ETF.

A post about an unknown "trader" purchasing 15,000 fifty cent puts....C'mon!!!

By: bg

bg — Sat, 22 Nov 2008 06:50:00 +0000

"One trader was taking the bankruptcy play, buying 15,000 of the January 2.5 puts for $0.50 in one block against open interest of 8,116 contracts. This trade will pay off only if MER is below $2 at expiration."

This trade makes no sense unless you think there is more than a 20% chance of complete (unrecovered, unbailed out) bankruptcy within the expiration time. You pay in 50c, and you get out 2.50 if you are right.

The 5's cost 1.20, which is almost the same ratio (24%), but these will pay out in the more likely case of a partial decline in value.