Matt Taibbi has published a story in Rolling Stone magazine that nobody should miss. It’s not yet available on-line, so you’ll have to pick it up at the newsstands, but here’s a quick summary.
Taibbi writes:
“On Tuesday, March 11th, 2008, somebody – nobody knows who – made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half of their value in nine days or less. It was madness – “like buying 1.7 million lottery tickets,” according to one financial analyst.”
Bear’s stock would have to drop by more than half in a matter of days for the mystery figure to make a profit. And that is what happened.
As Taibbi explains, “the very next day, March 12, Bear went into a free fall…Whoever bought those options on March 11th woke up on the morning of March 17th having made 159 times his money, or roughly $270 million. This trader was either the luckiest guy in the world, the smartest son of a bitch ever or…Or what?”
Taibbi speculates (as has Deep Capture) that these options might have been purchased by somebody who was abusing the options market maker exemption to engage in illegal naked short selling. Read more about naked short selling…
