Lehman Brothers Files For Bankruptcy

After weeks of failing to attract a buyer, Lehman Brothers Holdings (LEH, $0.21, down $3.44) played its last card on Monday and it wasn’t an Ace. Instead, the 158 year-old folded and filed for Chapter 11 bankruptcy. In a last ditch effort to try and save the company, the government and numerous banks failed to find a solution during weekend meetings. At one point, Bank of America (BAC, $26.55, down $7.19) was considering a bid for Lehman but the government urged it to buy Merrill Lynch (MER, $17.06, up $0.01) instead.

The fall from $67 to basically zero was fast and furious for Lehman after taking on too much exposure in the deteriorating mortgage and real estate markets. In the end after a last-ditch effort to find a buyer over the weekend failed, Lehman really had no other alternatives.

For those of you who kept the Lehman trade open from Friday, you might as well close it now because the puts have reach their maximum potential and the calls are worthless. The October 7.50 puts (LYHVU, $7.40, up $3.05) were profiled at $2.34 and easily tripled. This offset the October 12.50 calls (LYHJV, $0.02, down $0.27) which still made the trade a double. We were lucky to play Lehman one last time and it was well worth it. See ya’ Lehman.

Side Note: Harris Corporation (HRS, $45.60, down $3.89) will replace Lehman in the S&P 500 index on Tuesday.

Rick Rouse
Rick@OptionsMentoring.com

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