Friday, April 16, 2010

Goldman Sacked!

SEC charges Goldman Sachs with fraud. I think most people knew something was fishy and wrong with GS, but I never thought something would come of it. GS has high people in high places, so I still wouldn't call it justice-served just yet.

Just to show how ridiculous and gamed this market is right now, this announcement came on the heels of April OpEx. Because of that, you can easily double/triple/20x your money overnight with options, but at the same time, get slaughtered.

But when the U.S. Securities and Exchange Commission charged the bank with fraud and the stock price dived to an intraday low of $155.55, the April $170 puts and April $160 puts are suddenly “in the money” and could very well be exercised by investors who own them.

Just to show you how ridiculous it is, I happened to purchase a couple GS April 175 puts earlier this month for $1.88 per contract. I ended up getting stopped out that same day for a small loss. Here's my purchase ticket:

Now take a look at the options table for GS April puts today (with the 175 puts highlighted):

So, $1.88 puts on April 7th was worth up to $19.00 at some point this morning, and settled at around $14.00. For me, it could have been 7x or 9x my money. Did I miss out? Sure, maybe. But I would have sat through more pain watching those puts basically go worthless as of yesterday (see the low of $0.01 print for those puts).

Here's an article on the Goldman, Abacus, Paulson story that puts it in easier terms to understand.

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