My Age of Investment

The next day, as soon as the U.S. stock market opened, Bear Stearns' stock flew down three thousand feet as Liu Hai had predicted yesterday, and investors trampled on each other and fled amidst howls.

Bear Stearns' share price plummeted by more than 90% from yesterday's closing price of $34.38, once hitting an all-time low of $2.84, setting a new record in the 23 years since its listing!

This stock price is very close to the acquisition offer issued by JP Morgan, and it is also a formal reflection of the market's pessimism.

If multiplied by the total share capital of 118 million, Bear Stearns' current total market value is only more than 300 million US dollars, reaching its darkest moment.

Thinking back to last year, before the subprime mortgage crisis broke out, Bear Stearns' peak stock price was US$159, with a total market value of nearly US$20 billion. This financial giant was second only to Goldman Sachs, Morgan Stanley, Merrill Lynch and Lehman on Wall Street. ;

Even five days ago, when CEO Schwartz first appeared on TV and Bear Stearns was in turmoil, the stock price was still just over $60.

In just a few days, the situation took a turn for the worse, and people completely lost trust in Bear Stearns. Even JP Morgan was only willing to spend more than $200 million to acquire this toxic company. So how many unexposed risks are there?

With doubts and panic, people were selling Bear Stearns stock crazily.

If you choose to stop the loss now, you can still sell for more than 2 US dollars and lose less; when JP Morgan completely completes the acquisition, they will have to accept the outcome of the other party taking away the stocks they hold at a price of 2 US dollars.

Which one is better or worse is not difficult to choose.

Investors, with this take-it-out mentality, gave Bear Stearns' already fragile stock price another critical blow.

85 Wall Street, trading floor.

Analyst Hou Xiaoqiang, under the leadership of a vice president, and several other colleagues are responsible for tracking the stock price trend of Bear Stearns, and sending trading instructions to the brokerage departments of Goldman Sachs and Morgan Stanley at any time, which are then responsible for the two investment banks. Specific buy and sell execution.

"Guys, please work harder, there are instructions from above, you must close your short position of 4.28 million shares of Bear Stearns in the next few days.

After completing this task, everyone can have a week's vacation and take their family to travel to any corner of the world. The company will reimburse all travel expenses as a benefit for everyone who has worked overtime for two consecutive months. "

The vice president finished speaking concisely and then clapped his hands, "Okay, now everyone is sitting back in their seats. When the market starts, we will give our little sweethearts a surprise. Remember to be gentle and don't scare our little ones." Sweetheart.”

Hou Xiaoqiang smiled, followed his colleagues back to their seats, and then stared at the six LCD screens at the workstation. This was his battlefield, and promotion and salary increase were right in front of him.

Subsequently, as soon as the U.S. stock market opened, Bear Stearns' stock price did indeed crash.

Taking this opportunity, Hou Xiaoqiang and other colleagues issued buy and close orders one after another.

A large number of stock buying orders boosted Bear Stearns' stock price again.

The stock price first fell to $2.84, and then bottomed out.

$3!

$4!

5 USD!

…

The stock price keeps fluctuating in the range of 3-10 US dollars!

Hou Xiaoqiang felt something was wrong. They had obviously put back their efforts in closing the position, but the stock price was still fluctuating, which increased the cost of closing the position.

"Boss, I found that there are people entering the market to grab funds just like us. Bear Stearns has so many sell orders, but the stock price can still stay above $5."

The vice president glanced at Hou Xiaoqiang and said calmly: "You are not the only one who made this discovery. Do you think we are the only company shorting Bear Stearns?

Today, everyone is taking advantage of the panic in the market to close their positions. After a few days, Bear Stearns stock investors have calmed down. If they want to close their positions, the cost will not be so low! "

As he spoke, the vice president glanced at the screen in front of him and immediately said "Fake". While they were talking, Bear Stearns' stock price had exceeded $10 and was heading towards $15.

"Wait first, wait for the most impatient ones to run away first."

Following the vice president’s instructions, the team suspended position closing operations.

Sure enough, Bear Stearns, which was struggling to rise, could only hold on for three seconds before its stock price fell again. First it fell below $10, and then it was hit back to $5 by a large sell order.

Seeing this, the vice president finally smiled with satisfaction, "Guys, you can enter now."

Hou Xiaoqiang took the attitude of studying seriously and watched the whole process very carefully.

When Bear Stearns' share price broke through $10, all the big short sellers maintained a tacit understanding and stayed put.

When the stock price fell below $5, everyone started taking action again.

After several rounds of operations, all short sellers reached a silent consensus and closed their positions by keeping the stock price within the range of 5-10 US dollars. Everyone had something to eat.

A similar scene also occurred in another department of Vision Capital-the options trading department.

Vision Capital not only holds 4.28 million shares (accounting for 3.63% of the total share capital) of Bear Stearns stock, but also holds 5 million put options.

Compared with the stock price fluctuations caused by the closing of underlying stocks, the movement caused by option selling transactions is much smaller.

At present, Bear Stearns' stock price has fallen below the execution price agreed in the option contract, and has changed from an initial out-of-the-money option to a real-value option, and the price of the option has skyrocketed.

American options are different from European options in that the latter must wait until the expiration date before delivery, either one day earlier or one day later.

There are two ways to take profits in American options, taking put options as an example:

One is to wait for the expiration date to choose to exercise, buy an agreed number of shares from the market at a low price (current stock price), and then sell the shares to the counterparty at the contract price (high price) to earn the stock price difference;

The other is to take profits in advance, that is, to sell options that have not expired but have skyrocketed in price, and let the next taker bear the profit and loss risk.

If you choose the second method to sell the contract, because the option has not expired and may fluctuate with the stock price, selling the option in advance is equivalent to locking in profits and making a profit.

For the next taker, it is possible that the stock price has skyrocketed all the way after buying someone else's second-hand put option, causing it to be higher than the exercise price. At this time, it is impossible to choose to exercise the option, and the real-valued option becomes an out-of-the-money option and expires completely. Become a piece of waste paper.

However, Xia Jingxing was very good this time. He judged the time when the crisis broke out at Bear Stearns quite accurately. The put options held by Vision Capital will expire in the next week or so.

Therefore, there were two options before Vision Capital. Xia Jingxing chose the second option without hesitation and did not choose to exercise the options upon maturity.

Because if you want to exercise the option, you have to buy the stock from the market and then complete the resale.

The trading department responsible for short-selling the underlying stock is buying to close the position at this time, and then adding buy orders will easily push up the stock price, causing the profits of both departments to be affected.

In addition, Xia Jingxing also knew that JP Morgan's $2 acquisition bid was not the final plan. The two companies should be further negotiating these days and will soon come up with a new acquisition plan. By then, Bear Stearns' stock price will inevitably rise. Ushered in a major rebound.

If you are slow to move, you will be reluctant to bear the friction loss caused by quickly closing the position, and just bury it in it.

This is definitely a golden time to clear out all put options, just in time to sell at a high price.

Therefore, Xia Jingxing very decisively issued the order to "clear all positions". The various trading departments below were acting quickly. The short positions of the underlying stocks were quickly closed, and the put options were also sold on highs. A large amount of cash and short selling profits began to flow back to on the trading account.