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Thread: Debt Deflation, American Style: Yamaichi Securities Company 1997 vs Bear Stearns 2008

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  1. #9
    Join Date
    Jun 2006
    US, Europe and Asia

    Default Bear Put Options scandal update

    John Olagues just wrote in to update us on his Bear Stearns insider put options scandal. Look for an article by business reporter Gretchen Morgenson in the New York Times over the next few days.
    More Information on the Bear Stearns Puts used for Insider Trading, March 20, 2008

    Prior to 3-11-08, the following April puts did not exist. These came into existence as a result of a request to an options exchange(s) to create these series. That request was made by someone who felt that there would be some substantial activity in those series and were able to convince the responsible options officials to list the new series.

    Options Description______Beginning Date of Trading______Open Interest March 18, 2008_____Total Volume 3-11 to 3-14

    BSC April 20 Puts________3-11-2008___________________12,541*____________________ ___20,000

    BSC April 22.5 Puts______3-11-2008___________________1985*______________________ ___3700

    BSC April 25 Puts________3-11-2008___________________4049*______________________ ___8000

    BSC April 17.5 Puts______3-14-2008___________________700*_______________________ ___1027

    BSC April 15 Puts________3-14-2008___________________6223*______________________ ___8471

    BSC April 12.5 Puts______3-14-2008___________________1120_______________________ ___2090

    BSC April 10 Puts________3-14-2008___________________2388_______________________ __3281

    *This is the open interest at the close of trading Tuesday. The open interest at the close of trading on March 14, 2008, the day that the stock dropped from 57 to 30 and one trading day before the stock opened at three, was probably substantially higher because much of the open interest has probably been sold. Open interest is the total of net long position that all buyers are holding at the end of the trading day.

    There was very little trading in the April calls with those strikes. So, since the volume was very large in the puts, the requesting parties surely intended to trade the puts. And they certainly were not intending to sell (write) the above puts. They were intending to buy the puts, which they did.

    Why would they want to buy far out-of-the money puts? Bears Stearns stock closed at 57 on 3-13-2008 and closed at 70 on 3-10-2008. These prices are where the stock was trading when the request to list those new series was made.

    Every experienced trader understands that the persons who requested the listing of those above series and eventually bought large amounts of options knew that the crash was coming or was highly likely. The story is the same for the massive trades in the March series.

    So to solve the question of who were the inside traders, its merely a question of finding out who requested the very timely listing of those new series.

    Mystery solved Dr. Watson!


    John Olagues
    Last edited by FRED; 03-20-08 at 12:42 PM.

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