Exhibit 1: Implied volatility (via the CBOE):

and their commentary:

"Afternoon news of fruitless talks between Lehman Brothers and Korea Development Bank was followed closely by negative comments from Standard & Poors on its capital raising efforts - effectively lobbing a bushel of confidence-killing tomatoes at Lehman’s share price. How much more killjoy can Lehman take before it loses its mojo completely? With implied volatility remaining near the day’s highs at 312% (our all-time highest reading), it’s hard to see how much more Lehman can take. Shares closed 43.5% lower at $7.99 - this, needless to say, representing a new low for Lehman Brothers . The disparity between implied and historic volatility suggests about 131% more potential price risk over the next month than past performance would indicate, according to options traders. A look at front-month options suggests shares could rise or fall by as much as $5.00 over the next 11 days – effectively retracing or redoubling the loss since yesterday’s close. With 1.6 puts trading for every call, the conviction with which option traders are staking bets on Lehman can be deduced from the fact that the equivalent of more than 1 of every 3 Lehman option contracts in existence traded actively today. Fresh volume has been drawn to September puts at the 2.50 strike – where implied volatility at 612% is almost double the level for all Lehman puts. Also extremely active today were the January 5.00 puts, trading some 57,000 times today where open interest prior to today numbered only about 13,500."

Exhibit 2: News flow for today only (via DJ Newswires):


Course, that won't stop Other People's Money syndrome.

Exhibit 3: The morning's Frankfurt trading in LEH (+10.9%):



Mr Fuld's message on today's earnings announcement ('why we are right to hold out for better deals'?) ought to be worth listening to.

Related stories:
Lehman worries take shine off US bail-out

Lehman to announce initiatives; KDB talks over
Lehman's Fuld Faces Pressure to Land Deal After Drop

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