SEC Investigating Bear Stearns Options
The SEC announced today that it would be investigating an unusual surge in “put” options trading leading up to last week’s monumental collapse of Bear Stearns. A “put” option is a bet that a stock will go down, so a significant uptick in the purchase of those prior to something as surprising as that collapse is very questionable. With a “put,” a trader buys the right to sell shares at a specified price. If the shares fall, then a profit can be made.
How usual was the trading? The number of open put options went from 167,439 to 465,820 and the SEC wants to know why. The prior week the number of open put contracts was around 155,000. The SEC wants to know if people had insider knowledge because that increase is phenomenal.
Source: Wall Street Jornal Law Blog