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Two Ways To Play: Lehman Takes a Reamin'


Strengthen your portfolio in good times and bad.

Bloomberg reports Lehman Brothers (LEH) dropped the most since the company first went public in 1994 due to speculation that Freddie Mac (FRE) and Fannie Mae (FNM) might fail.

Lehman fell as much as 30% today before recovering nearly half those losses late in the afternoon session even after Treasury Secretary Hank Paulson said federal regulators are backing the government sponsored entities (GSEs) in "current form."

Credit-default swaps jumped on Lehman by as much as 46 basis points to 271. It was the highest since the Federal Reserve backed a sale of Bear Stearns.

Lehman, once the largest U.S. underwriter of mortgage bonds, has lost nearly 78% of its market value this year after reporting its first quarterly loss in its history. To date, it has raise $13.9 billion to shore up its balance sheet after reporting $8.2 billion in writedowns.

From the Bull Pen: Should the tape turn, financials will lead the way. A risk/reward opportunity might lie in Goldman Sachs (GS); sell-stops below the $160 neckline.

From the Bear Cave: The banks are due for a rally and it may be vicious. But it doesn't change the state of the company. Bears that believe Lehman can't finance itself can look at rallies toward the $20 mark as opportunities for downside entry.
No positions in stocks mentioned.

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