Wall Street investment bank Bear Stearns received emergency 28 day funding today from JP Morgan and the NY Fed. BSC cratered on the news and closed at 30, down 27 points, a whopping 47% drop in just one day.
Reports are circulating that major banks have issued orders for no dealings with Bear Stearns, and the bank is probably dead as a going concern.
Lehman Brothers is also reported to be in trouble, although Bear certainly takes the prize for mismanagement and for getting involved in toxic waste “investments.”
Disclosure: I’ve been buying puts (you make money if the stock price falls) on BSC on and off for the past several months and thus have watched the stock carefully. In the past, just when you thought it was a goner, it would stage a furious sustained rally, sometimes for several weeks in a row. However, based on the past few weeks, and especially today, it now appears BSC is circling the drain.
You can still put puts on BSC. However, because the company is at such risk, the options are extremely expensive, and given its weakened state, another company could buy them, driving the stock price up. So, maybe I’l buy more puts, maybe not. (I prefer to buy puts on companies that are starting to weaken, not ones that have already collapsed.)