leh

Lehman Brothers (NYSE: LEH) shares are falling today as an SEC official has warned that future investment banks that get into trouble may not get the same bailout that Bear Stearns (NYSE: BSC) did. Director of Trading and Markets at the SEC Eric Sirri told the House Investment and Insurance Subcommittee that the liquidity help given to BSC may not necessarily be repeated if another bank has trouble. These words have dragged down LEH in trading yesterday afternoon and so far today. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on LEH.

After hitting a one-year high of $82.05 in June, the stock hit a one-year low of $20.25 in March. This morning, LEH opened at $44.19. So far today the stock has hit a low of $41.67 and a high of $44.19. As of 12:40, LEH is trading at $42.67, down 0.97 (-2.2%). The chart for LEH looks neutral and improving, while S&P gives the stock a neutral 3 Stars (out of 5) Hold rating.

For a bearish hedged play on this stock, I would consider a June bear-call credit spread above the $50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 14.2% return in six weeks as long as LEH is below $50 at June expiration. LEH would have to rise by more than 17% before we would start to lose money. Learn more about this type of trade here.

LEH hasn't been above $50 since mid-February and has shown resistance around $47 recently. This trade could be risky if the company's earnings (due out in mid-June) are a positive surprise, but even if that happens, this position could be protected by resistance HSY might find from its 50-day moving average, which is currently around $45.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in LEH or BSC.

Lehman (NYSE: LEH) closed at $44.24 Wednesday.

Smith Barney says: "Mgmt has a track-record of taking share coming out of downturns and based on investments being made, this time around won't be different."

LEH June option implied volatility of 57 is near its 26-week average according to Track Data, suggesting non-directional risk.

Financial Select Sector-XLF overall volatility at 28; 26-week average is 35

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Just a year ago, if you mentioned "sovereign wealth funds," you probably would have gotten a blank stare. But, of course, this is now the hot thing in finance. More importantly, it looks like sovereign wealth funds are poised for strong long-term growth. In fact, Lehman Brothers (NYSE: LEH) recently set up a division to capitalize on the mega trend.

Sovereign wealth funds are found in many countries in Asia, Africa, Europe and the Middle East. It's the inevitable consequence of some major forces: strong economic growth in emerging economies, the fall in the US dollar and spikes in commodities prices, especially oil.

Global Insight, a research firm, estimates that sovereign wealth funds have grown an average of 24% per year for the past three years. They have about $3.5 trillion in assets, which is more than private equity and hedge funds combined.

No doubt, sovereign wealth funds have become a key element in global finance. For example, they contributed to about 28% of M&A deals (in January 2008) and about 10% of private equity transactions.

Global Insight forecasts that – by 2015 – sovereign wealth funds will exceed the value of the GDP of the US economy. And, I'm sure, the funds will also own a big chunk of it as well.

Tom Taulli is the author of various books, including The Complete M&A Handbook (www.mergerbook.com) and is also a principal in Averiware, which provides an ERP system to small and midsize businesses.

Every hour, the U.S. spends about $100 million on oil. Of course, a big chunk goes to the Middle East, and ultimately, into sovereign wealth funds.

Although far from exact, it looks like sovereign wealth funds have about $3.5 trillion in assets, which is more than private equity and hedge funds. In other words, this is a huge opportunity for Wall Street.

Well, Lehman (NYSE: LEH) is taking advantage of this opportunity and is setting up a sovereign wealth division, with Makram Azar, who is an M&A maestro (in the global media sector), as its chief. He will set up shop in Dubai, the center of the universe for sovereign wealth funds.

This week on CNBC, Azar talked about his new role. Basically, he'll be developing a platform to help sovereign wealth funds diversify their bulging assets into commodities, minority investments, hedge funds, real estate and so on.

It will mean lots of coordination among the divisions of Lehman, but more importantly, if things work out, it could be a much-needed source of fees.

Tom Taulli is the author of various books, including The Complete M&A Handbook (www.mergerbook.com) and is also a principal in Averiware, which provides an ERP system to small and midsize businesses.

MAJOR PAPERS:

• In an effort to refocus on coffee, the Wall Street Journal reported that Starbucks Corporation (NASDAQ: SBUX) will attempt overhaul its entertainment business.
• Private equity players Apax Partners and Kohlberg Kravis Roberts, along with Lehman Brothers Holdings Inc (NYSE: LEH) in a supporting role, are looking to form a consortium to examine a bid for the insurance assets of The Royal Bank of Scotland Group Plc (NYSE: RBS), the Financial Times reported.

OTHER PAPERS:

• Yahoo! Inc (NASDAQ: YHOO) is going to let outside developers create applications across its network of sites, the New York Times contended. The search engine is also going to combine its online services under the social profile concept in an attempt to allow its users to replicate the social experience that social networks like News Corporation's (NYSE: NWS) MySpace and Facebook have made so popular.

WEB SITES:

• Research In Motion Limited (NASDAQ: RIMM) will reportedly delay the launch of its new hotly anticipated 3G BlackBerry phone, Fortune reported, which the company is developing for AT&T Inc (NYSE: T). The phone, originally supposed to be launched in June, may not be released until as late as August, inside sources said.

TheStreet.com's Jim Cramer says we know how it'll play out. Besides, there's money to be made elsewhere.

Nobody's dissing the credit crisis. We all see it. We know when it is back. We know that the write-offs for the banks and brokers and Fannie (NYSE: FNM) (Cramer's Take) and Freddie (NYSE: FRE) (Cramer's Take) will be gigantic if and when the Gang of Four (Ambac (NYSE: ABK) (Cramer's Take), MGIC (NYSE: MTG) (Cramer's Take), MBIA (NYSE: MBI) (Cramer's Take), PMI (NYSE: PMI) (Cramer's Take)) finally chokes to death. But we also know that Boeing (NYSE: BA) (Cramer's Take) and Honeywell (NYSE: HON) (Cramer's Take) and Schlumberger (NYSE: SLB) (Cramer's Take) and Lockheed (NYSE: LMT) (Cramer's Take) and all of the other stocks that are on the move, not to mention anything oil and gas, just aren't that levered to the crisis. I know that is heresy for many of you. How could the crisis not bring everything to its knees?

Because these companies are basically foreign companies. They are just not that important to the credit crumble.

TheStreet.com's Jim Cramer says the good stuff out there -- and there's a lot of it -- will keep us going up.

How high can we go? That's pretty much the only question worth asking after you put in a bottom, as we did after the Bear Stearns (NYSE: BSC) (Cramer's Take) collapse.

Nobody's talking about a new bull market. But let me give you some thoughts about what has happened in the past few weeks to make it so that you could become more positive.

First, we went down so much because the systemic risk in the biggest part of the S&P, the financials, was overwhelming. It is why we "overcorrected" because the market feared -- and shorts pressed their bets -- that the following institutions could go under: Bear Stearns, Washington Mutual (WM) (Cramer's Take), Wachovia (WB) (Cramer's Take) -- yes, Wachovia, because of the miserable buy of what turned out to be a really reckless lender, Golden West -- Lehman Brothers (LEH) (Cramer's Take), Merrill Lynch (MER) (Cramer's Take), Citigroup (C) (Cramer's Take), National City (NCC) (Cramer's Take), Capital One (COF) (Cramer's Take) and even Wells Fargo (WFC) (Cramer's Take). Fannie (FNM) (Cramer's Take) and Freddie (FRE) (Cramer's Take), too.

AP reports that Lehman Brothers Holdings (NYSE: LEH) liquidated three investment funds worth about $1 billion last quarter after their assets declined in value amid the larger credit crisis. The funds -- not unlike troubled Structured Investment Vehicles (SIVs) -- were kept off of Lehman's balance sheet. And like Citigroup Inc. (NYSE: C), Lehman decided to take the funds onto its balance sheet.

Lehman has written off $3.93 billion on its credit and lending portfolios since the third quarter of 2007, including $1.8 billion in the first quarter of this year. It did not indicate whether any of that total was for the assets in the liquidated funds. And while Lehman claims it was not required to make this move, the funds would have failed if Lehman had not made this move.

This disclosure raises troubling questions about what other off balance sheet entities might be lurking in the background. After Enron, investors might have hoped that off balance sheet entities -- and their attendant shocks for investors -- would have been eliminated for good. But that source of unpleasantness is here to stay.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup stock and has no financial interest in Lehman securities.

MAJOR PAPERS:

• To help stop Microsoft Corporation's (NASDAQ: MSFT) $44.6 billion takeover offer, Yahoo! Inc. (NASDAQ: YHOO) is in talks with Time Warner Inc. (NYSE: TWX) about combining internet operations. Meanwhile, Microsoft is talking with News Corporation (NYSE: NWS) about a joint bid for Yahoo! And Yahoo! is is considering a possible advertising agreement with Google Inc. (NASDAQ: GOOG), the Wall Street Journal reported.
• The Wall Street Journal also reported that IAC/InterActiveCorp (NASDAQ: IACI) is planning to launch a number of new web sites, and hopes to capture a variety of audiences including African-Americans, children and news followers.

WEB SITES:

• Lehman Brothers Holdings Inc. (NYSE: LEH) said it liquidated three investment funds, with assets valued at $1 billion as of February 29, because of "market disruptions," Bloomberg reported.
• Reuters reported that the U.S. Department of Defense approved the sale of 157 armored trucks to Britain. The trucks are built by Force Protection Inc. (NASDAQ: FRPT), and the deal is valued at $125 million if all options are exercised.

In this April 1st article, I wasn't kidding around when I chose less popular stocks over hotly debated names like Google (NASDAQ: GOOG), Apple Inc (NASDAQ: AAPL) and Lehman Brothers Holdings (NYSE: LEH). Because investing is not blogging-the amount of hits, traffic and debate a topic stirs up does not help you make money (in fact it might hinder it considering all the cheerleaders are already invested).

Instead, as I often say in posts like this and as I yell to random passers-by on the streets of NYC (for fun), "it's all about the charts, stupid!"

Now, one week later from that article, ask me if I am surprised to see 2 out of the 3 stocks from last week's article-Weatherford International (NYSE: WFT) and United States Steel Corporation (NYSE: X) continuing to breaking out to new highs, with Illumina Inc (NASDAQ: ILMN) "struggling" up only 4% on the week, a few cents off its highs.

TheStreet.com's Jim Cramer says that by offering a good yield, Lehman helped transform the case on a number of financials.

In a world of virtually no fixed-income return, when you offer a 7% piece of paper with terrific upside, as Lehman (NYSE: LEH) (Cramer's Take) did, you can bet you will get takers.

Sure the yield wasn't as good as Merrill's (NYSE: MER) (Cramer's Take), but Merrill's balance sheet isn't as good as Lehman's.

I know there was a lot of rejoicing yesterday about taking Lehman off the table and also UBS (NYSE: UBS) (Cramer's Take) off the table as patients that could die. One by one we stabilize them.

Yes, we can still worry about Wachovia (NYSE: WB) (Cramer's Take), Washington Mutual (NYSE: WM) (Cramer's Take) and yes, Citigroup (NYSE: C) (Cramer's Take) (I am removing Morgan Stanley (NYSE: MS) (Cramer's Take) because I think they could offer the same terms as Lehman), but the more you ensure that other firms won't meet Bear's (NYSE: BSC) (Cramer's Take) fate, the more you want to put money with WM, C and WB no matter how bad you think they are.

MAJOR PAPERS:

• According to the Wall Street Journal, troubled Ohio bank National City Corporation (NYSE: NCC) is considering a plan to sell itself to rival KeyCorp (NYSE: KEY), people familiar with the matter said.
• The Financial Times reported that Lehman Brothers Holdings Inc (NYSE: LEH) yesterday said it had sent information to the SEC about possible abusive short-selling in its shares in recent days. Lehman CFO Erin Callan said the SEC was examining whether hedge funds collaborated to drive down the bank's share price in the days following the near collapse of The Bear Stearns Companies (NYSE: BSC).
• Colombia's heavy oil area could hold 20B barrels of recoverable resources, the Financial Times reported, giving the country greater reserves than leading producers such as Mexico and Algeria, according to Colombia's government.

WEB SITES:

• The Silicon Alley Insider reported that Douglas Merrill, Google Inc's (NASDAQ: GOOG) CIO, is leaving the company to become the president of music company EMI.

The Dow Jones industrial average soared almost 400 points today as a plethora of good news soothed the frayed nerves of investors. This is the best start for stocks in the second quarter since 1938, according to Bloomberg.

First, Lehman Brothers Holdings Inc. (NYSE: LEH) and UBS AG (NYSE: UBS) announced plans to raise an additional $19 billion in capital to bolster their balance sheets that have been pounded by write downs from exposure to subprime mortgages. The news lifted the shares of many financial stocks including Merrill Lynch & Co. (NYSE: MER), Bear Stearns Cos. (NYSE: BSC) and Morgan Stanley (NYSE: MS).

For once, the economic data wasn't all that bad either. Data from the Institute of Supply Management showed manufacturing activity slowed in March at a slower rate than February and the government also reported better-than-expected construction data for February.

American International Group, Inc. (NYSE: AIG) shares are trading higher today after financial giants Lehman Brothers (NYSE: LEH) and UBS (NYSE: UBS) announced that they will issue new stock to raise cash. The moves reassured investors worried that financial services companies don't have enough cash to survive the current liquidity crisis, and sent most financial stocks up this morning. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on AIG.

After hitting a one-year high of $72.97 in May, the stock hit a one-year low of $38.50 last month. AIG opened this morning at $44.51. So far today the stock has hit a low of $44.51 and a high of $46.43. As of 11:30, AIG is trading at $45.95, up $2.70 (62%). The chart for AIG looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a May bull-put credit spread below the $30 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in just 7 weeks as long as AIG is above $30 at May expiration. AIG would have to fall by more than 34% before we would start to lose money.

Google (NASDAQ: GOOG) this, Apple Inc (NASDAQ: AAPL) that, will Lehman Brothers Holdings (NYSE: LEH) follow Bear Stearns (NYSE: BSC) -- bleh, all hotly debated, all random market noise! Noise that you must learn to ignore.

The financial media -- envious of the fat profits generated by such entertainment-based businesses as World Wrestling Entertainment Inc (NYSE: WWE), Las Vegas Sands Corp. (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN) -- has brainwashed you into believing that in order to make money in the stock market, you must keep up to date with every single headline and development in the business world. Hogwash!

I have no problem with financial entertainment, but I do take issue with all these media outlets making their content out to be useful to investors. I've repeatedly echoed this theme in articles like this and I don't expect this industry to change anytime soon, but I am going to keep preaching so you will better understand how low your chances of success are if you bet on the most popular -- hence the most efficient -- topics du jour. Unless you are George Soros or Warren Buffett or a few other wealthy elderly men, there is always somebody better informed and more intelligent than you are. Hence, you are always at a disadvantage.