Wednesday, September 19, 2007

The $900 Million Bet

So I made a prediction a few months back about the economy collapsing like a house of cards. The ensuing months has seen a lot of turbulence with the Fed cutting rates and making more credit available, the shakeout from the subprime mortgage market not being over, the growing trend of weakness of the dollar versus the Euro. The real inflation rate being pegged at around 10-15 percent. We are witnessing a perfect storm brewing. It isn't going to be pretty.

Turns out I'm not the only one, some anonymous parties are wagering that the economy is going to tank (via Money Morning):

Insiders trade when they know something. They’re not supposed to, but they do anyway. It’s just a fact of life.

Most of the time, it’s pretty petty-ante stuff, but occasionally a trade comes along that makes even jaded professionals like me sit up and take notice.

Just such a trade surfaced last Wednesday when anonymous parties agreed to buy and sell 120,000 SPY September call options using deep-in the-money strikes ranging from 60 to 95.

What does all that mean? The people behind this transaction are betting that by September 21st, the S&P will be trading between 600 and 950. It closed at 1519 yesterday, which is a drop between 35-60%. The article goes further and talks about possible motivations for the trade (I think the China dumping dollars scenario is VERY plausible).

Gold and bicycles people, gold and bicycles.

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