In an attempt to stop the bleeding at Lehman Brothers Holdings (LEH, $22.70, down $1.05), the company cut ties with its Chief Financial Officer Erin Callan and Chief Operating Officer Joseph Gregory. This after announcing a $3 billion loss for the quarter and a $6 billion stock offering. The news was no surprise, really, as the company should have “shook things up” a long time ago.

Still, Wall Street didn’t know how to react to the announcement. Lehman took a dive when the market opened and hit a low of $21.17 within minutes. By 10AM the stock would hit its high of $24.55 for the day. Huge moves on “big boy” volume…nearly 175 million shares traded hands today. Incredible.

If you step back and look at the whole picture, Lehman is like a snowball rolling down a mountain that has suddenly turned into an avalanche. The mortgage/ housing boom-bust has just crippled them as they were one of the lead underwriters of mortgage-backed securities. The writing has been on the wall with this company for quite some time and maybe they can turn things around. Maybe they won’t.

On Tuesday, Lehman was trading at $29 and change when I said the June put options were “expensive”. Well, those “expensive” options have exploded as the stock has lost $7 in two days. The June 30 puts (LYHRF, $6.95, up $0.8013) were trading for $2 and hit a high of $8.95. The June 25 puts (LYHRE, $3.20, up $0.36) were trading for 50 cents. I didn’t do the math to get a percentage return on that one but $1,000 invested in these put options is worth $6,400 as of today’s close. Better yet, the 25’s hit a high of $4.70 meaning if you had cashed out in the morning your $1,000 would have turned into $9,400. How sweet is that?

I must admit though, I do kind of feel bad for the analyst who “upgraded” Lehman and all of those who, together, bought $4 billion of common stock priced at $28…

Rick Rouse