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Two Ways To Play: Traders Dump Lehman


Strengthen your portfolio in good times and bad.

Lehman Brothers (LEH) fell to an eight-year low according to Bloomberg. Traders sold the stock on speculation that the fourth-largest securities firm in the U.S. could be sold less than its market value.

Just two weeks ago, Lehman's CEO Richard Fuld said that the company didn't need to be acquired. Fuld said, "With this franchise strength, and power, we can go it alone."

But Lehman plunged as much as 11% during the day. Its shares reached a low point investors hadn't seen since May of 2000. Further, options traders bet that there was more room to the downside. LEH's July $20 puts gained 66% to $2.13.

LEH finished the session down 10.97% to $19.81.

For more context, see Professor Bennet Sedacca's Has the Financing Window Shut?

From the Bull Pen: Are the banks poised for a rally? Wachovia (WB) may be an option for a quick trade. Those with a high risk profile can attempt the upside using defined risk.

From the Bear Cave: Professor Sedacca summed up Lehman quite poignantly, "The case in point was when Lehman told the market that it didn't need to take write-downs and didn't need to raise equity. The week after this announcement it fired its CFO and raised capital it said it didn't need, in order to pay for write-downs it said it didn't have. It shows the company's inability to assess risk."
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No positions in stocks mentioned.

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