Lehman Brothers Holdings (LEH, $29.48, down $2.81) confessed to the market yesterday about what the company’s plans were for raising money and how big of a loss it would have for its current quarter. Both figures were higher than what The Street was expecting. Much higher.

The company announced plans to raise not $4 billion but $6 billion through an offering of common and preferred stock. It was first rumored that Lehman’s was trying to finance $4 billion but I guess they needed the additional $2 billion to cover an expected 2Q loss of nearly $3 billion, or $5.14 a share. The $3 billion loss was light years away from what analyst’s consensus were…a loss of $0.20 a share or $300 million.

I don’t know about you but I exactly wouldn’t be doing cartwheels about the prospects of buying any kind of Lehman’s stock right now. Lehman is issuing $4 billion of common stock priced at $28 a share and $2 billion of mandatory convertible preferred stock. This was old news of course but the magnitude was the shocker. I’ve known something was up with Lehman’s and that they weren’t telling the whole story which is why I was so critical of the analyst’s upgrade last week.

I had mentioned the trading in the June 30 puts (LYHRF, $2.07, up $0.13) last Wednesday and how the options were getting expensive because of the current volatility surrounding the stock. Before the “upgrade” on Lehman’s stock, these same June 30 options were trading for $3.35 but got hammered after the upgrade as the stock hit a high of $34.64 last Friday. The stock hit a low of $28.00 yesterday and the puts traded as high as $2.90 but still below from where they were last week. The June 25 puts (LYHRE, $0.53, down $0.32) are down 50%.

Both of these options are still richly priced as implied volatility now stands near 85%. Without getting too technical, the implied volatility for Lehman’s is now twice of what its historic volatility normally is. This basically means that if you are expecting further weakness in Lehman’s stock the better way to make money might be to short the stock because the options are fetching a nice premium. June option contracts expire on 6/20.

Rick Rouse