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Tuesday, August 19, 2008

Sallie Mae: Suspicious Put Open Interest

Damn! How do they KNOW?

These traders are either real financial ninjas (not probable) or they have access to dirty, secret insider info (most probable)...

From Bloomberg on August 13th: U.S. Options Index Climbs as Bank and Brokerage Shares Tumble:

"The most-active options on Sallie Mae were those giving the right to sell the stock at less than half the current price.

Sallie Mae put trading rose to almost quadruple the 20-day average as the largest U.S. educational lender lost 3.3 percent to $15.69. The most-active contracts, which give the right to sell the shares at $7.50 by January 2010, added 3 percent to $1.70."

From Bloomberg on August 19th: US Equity Movers:

"SLM Corp. (SLM US), the student lender known as Sallie Mae, tumbled 14 percent to $13.32."

That's it. No other explanation. Just that SLM got pwned.

Lets take a closer look at option activity. Well, what a surprise? Sallie Mae Put Open Interest looks just like that of Lehman... which looks just like that of Bear Stearns.

Open Interest in the Jan 09 10 Puts is 79 461 contracts. That is massive.

We do know Fannie Mae and Freddie Mac are screwed. We know they recklessly piled on the risk and we know they can't survive on their own. We know a bailout is imminent.

Maybe we haven't been paying enough attention to Sallie Mae. It would appear that ALL GSE's engorged themselves with bad credit.

Hey Sallie Mae! How you doing?

"Sallie Mae was originally created in 1972 as a government-sponsored entity (GSE). The company began privatizing its operations in 1997, a process it completed at the end of 2004 when the company terminated its ties to the federal government." (SallieMae)

Related Post:
Lehman Put Open Interest: Just Like Bear Stearns


Anonymous said...


SLM is NOT going to get the same backstop/bailout that FRE and FNM will get. Just like FRE and FNM, the shareholders will be wiped out BUT any holders of Sallie debt will be taken to the cleaners as well.

Glad I already graduated . . . school's going to get a lot more expensive.

-Mike J

p.s. I thought about shorting SLM a few weeks back but the chart looked too messy. Still does, so I'm going to stay out of that boondoggle.

DKenny said...

School isn't going to get more expensive, it's going to get cheaper. Everybody and their brother isn't going to be able to get credit subsidized by the government, so schools are going to have to slash tuition. Welcome to deflation.

Anonymous said...

Naked Short is back!

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