Bear Sterns (BSC) : Falling from grace

Published on August 6, 2007

Bear Sterns (BSC) : Falling from grace

August 6, 2007

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BSC IVHave you noticed IV in BSC options recently? Attached chart from Ivolatility shows IV profile as of friday close >70%. However, as of now ATM levels are trading above 100%. There may be differences in the way IV is calculated by Ivolatility or ToS. Albeit, it offers great option premiums to play. It has tempted me to open a trade on BSC which is listed as per below.

 BSC 100 Put calendar Here is a directional trade (BSC 100 Put calendar (buy Sept/Sell Aug), debit $3.75/spread) that I am looking at for a very short period and I shall keep on adjusting as it either continue to fall or rise. The breakevens as well as maximum profits are all listed.

There is a watch-out though: BSC should not crash in a day. As long as it is either falling  or rising slowly, I shall be able to make good money. My startegy on this trade is to keep it as delta neutral as possible and continue to add theta.

Disclaimer: I have invested my money into this trade and I know what I am getting into. Pls ensure you understand the risk associated with options or calendar spreads before investing should you choose to do so.


  • Avatar jordan says:

    OP, where do you get the stock price & risk graph which you attached here? Doesn’t look like from TOS.

  • Avatar OptionPundit says:

    The chart is from Optionetics’s platinum software. No need to buy, the same can be created using ToS and a little bit of creativity, but had not time 🙂

  • Avatar OptionPundit says:

    Just when u think that things are in control something like this happens, an excellent reminder of my being as income trader.
    Since I posted the trade, BSC did find a support but then rallied $13!!!

    Beauty of this trade is that, IV has supported even this rally and I am almost flat despite the $13 rally.

    Profitable trading, OP

  • […] I talked about a trade on BSC’s falling from grace. OP’s registered users to forum and blog received this trade alert via e-mail soon […]

  • Avatar OptionPundit says:

    I am now looking at 120 Aug/sept put calendar spread for $3.75 debit roughly. This will increase my break even point to roughly $126.

  • Avatar OptionPundit says:

    If BSC does crosses above 120, I shall be selling my 100 put calendar and pick loss on that one.

  • Avatar OptionPundit says:

    Seems like analysts were able to lift BSC. For past 2.5 trading session it has been pretty strong. $114-$116 is also a strong support area and it has already penetrated that level.

    Though 110 and 120 still are ok, but this position is being at two front- 1) IV for the same reason I started, but now in opposite direction and 2) short delta.

    Well, keep an eye. Profitable trading, Op

  • Avatar OptionPundit says:

    Well, as it turn out, the worst nightmare was here with the BSC. The stock rose over $23 dollars in less than 3 trading sessions, much more than what my income trade could handle.

    The trade is closed completely for a loss of 21%. I shall be posting the details later on.

    Profitable trading, OP

  • […] trade of the month after RUT income trade, this was a speculative trade on BSC that I started here. I mentioned in my post that my nightmare was only it’s either rising or falling too quickly. […]

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