Thursday, November 13, 2008
Goldman - Panic in Goldman Options
Take a look at the GS December 20 and 22.50 puts - the prices are fking insane (1.25 for the December 20 put and 1.55 for the December 22.50 put). Traders are discounting a small but legitimate chance that this stock could drop another 67% by expiration. These options would be worthless even in highly stressed environments. Over the last year, option prices this high have been a good contrarian indicator for the broader markets because it signals that rampant fear is built into prices. But, these prices are making me very nervous this time around and I will watch from the sidelines. Clearly, the desired goal of these put buyers is to create a market panic because nobody would hedge long shares at those strike prices. I would never sell these puts because I rule nothing out in this market. Talk to the put sellers in AIG, FNM, FRE, BSC, and LEH. They thought they were getting a ridiculously high price before the trade caused them to go out of business.