Investors Speculate Further Drop Amid Lehman Puts and Default Swaps
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Photo Credit: World Economic Forum
Investors that deal in options and derivatives markets are speculating that Lehman Brothers Holdings Inc. has yet to fall even further based on concern that the securities firm needs outside financing to nurse its balance sheet back to health.
A two-month high bearish outlook for options traders amid serious financial problems as Lehman reports the company’s first quarterly loss from the time the firm went public in 1994. The firm’s debt protection costs during the previous week has skyrocketed to 240 basis points from 150 basis points in the credit-default swaps market.
Lehman is without doubt likely to raise equity capital in the wake of this crisis. The firm’s second-quarter loss is about 50 cents per share during the third week of June.
As Lehman may need outside financing, the company has set its eye on overseas investors such as those from South Korea. The previous day, company shares fell 9.5 percent to $30.61 that translates to 53 percent loss this year.
Lehman put options trading escalated to 283,676 contracts. This further translates to four times the 20-day average. Bearish bets outnumbered bullish ones by 1.6-to-1.
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