Let's review the timeline that was the BSC collapse - as summarized by our friends at FierceFinance:
- Wednesday, March 12 – ALSO NOTED: Rumors about Bear Stearns liquidity heat up
- Friday, March 14 – What’s up with Bear Stearns?
- Monday, March 17 – Update: Bear Stearns finally falls
- Tuesday, March 18 – JP Morgan bets big on Bear Stearns
I recall CNBC's Fast Money talker, Jon Najarian, talking about put option contracts valuing BSC at $20 - shocking at the time when BSC was trading in the $60s. That was crazy talk! Or was it?
A Startling Case of Foreshadowing
Take a look at the raw data Trade-Ideas' servers were recording during this fateful week for BSC - pay notice to the 'Prev Put Volume' column:
From Monday, March 10th to Tuesday, March 11th (a whole day before the rumors started flying), Trade-Ideas picked up a 5-fold increase!!!
I don't care about who knew what before the official news - if this is a pattern that can alert me to future massive sell-offs before they happen, then I'm simply letting Trade-Ideas be my eyes on the market - looking for previously unseen patterns and bringing them to my attention for action.
Specifically: Can a higher than usual spike in put-option volume lead to a significant drop-off in price? How large must the unusual volume be? How long is the optimal time to hold a possible short position?
I plan on putting together a strategy that answers these questions for us and watch as we approach the Citibank earnings release. Until I post that strategy, here are the raw ingredients I will be using to build it: http://www.trade-ideas.com/Help.html#wsf_MinPCAV
Option Traders Will Love These New Filters in Trade-Ideas - http://marketmovers.blogspot.com/2008/02/option-traders-will-love-these-new.html