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This past Tuesday, when Bear Stearns(BSC - Cramer's Take - Stockpickr) was trading around $65 a share, there was huge put volume in the March $30 strike.
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Over 55,000 contracts traded that day at an average price of 15 cents a contract. This is an extremely unusual trade in terms of the number of contracts and how far out-of-the money those options were at the time. This begs the question of why someone would execute such a transaction.
First, it's important to understand that buying a put gives you the right to sell the stock at the strike price. So to buy a put that requires the stock to decline over 50% is essentially a bet that the company is possibly on the brink of going out of business or about to deliver some terrible news.
Remember, these options expire on March 20, so that left only 10 days for some event to occur that would cause these puts to go into the money and have some value. So it appears that as rumors began swirling early in the week that Bear was having liquidity problems and might possibly be bordering on insolvent, someone took that to heart and bought the puts as disaster insurance. And today came news that several banks, including Goldman Sachs (GS - Cramer's Take - Stockpickr), would no longer act as a counterparty to any transactions with Bear. The inability to execute trades would essentially put Bear Stearns out of business.
Hence, we have today's selloff in which shares of Bear are down some $25, or 44% to around $30 a share. It's not a surprise that those $30 puts are the most active strike today. With an hour left in the trading day, over 40,000 contracts have traded. This surpasses the open interest of 36,000 contracts that were open as of this morning.
The SEC will hammer someone if this is insider trading. they shoua stuck with 10-15 puts that many options is gonna get as lot of attention. If they had shorted the GBP/JPY they could have picked up 1000 pips legally.
"Some guys play in all-star games, some guys don't. I don't know who picks all those all-star teams. In all honesty, I don't know who picks the combine, for that matter," Belichick said. "How does (Miami-Ohio offensive lineman Brandon) Brooks not get invited to the combine? How did Vollmer not get invited to the combine? I don't know. We can't really worry about that. We just have to try to evaluate them the best we can."