Why I Bought More Merrill Lynch Puts

I bought these additional Merrill Lynch (MER) April 50 puts for the same reason as my earlier purchases -- it was clear that Merrill Lynch would have some very large write-offs associated with residential debt obligations and CDOs. As I discussed earlier, the impact on book value could be nothing other than substantial. Citigroup's (C) dismal results only confirmed the likelihood of this -- though Merrill's shares did not seem to react -- and it was time to purchase more puts. The reckoning came last Thursday...

Merrill Lynch announced Thursday $16.7 billion in write-offs, $11.5 billion of which are due to subprime mortgages and CDOs. The result was net loss from continuing operations for the fourth quarter of $10.3 billion, or $12.57 per diluted share. Its book value has fallen to $29.37; it had been $41.35 at the end of 2006.

Is it over? Merrill Lynch still has over $60 billion in net exposure to residential mortage-backed securities and asset backed CDOs on its books...

Comments

[Long-Short Guy:]

What's your target price for the stock?

2008 Jan 21 04:37 PM

[Skeptic:]

Once you announce that you have bought "MERRILL PUTS" then you have a conflict of interest; your negative comments on the stock might now be interpretted as self-serving attempts to make some cash. As a journalist who writes a Financial Column, you should be careful that you don't cross the line of what is legal.

2008 Jan 21 09:38 PM